Generational Accounting, Solidarity and Pension Losses
Coen N. Teulings
University of Amsterdam - SEO Economic Research; Tinbergen Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
Casper G. De Vries
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
IZA Discussion Paper No. 961
The creeping stock market collapse eroded the wealth of funded pension systems. This led to political tensions between generations due to the fuzzy definition of property rights on the pension funds wealth. We argue that this problem can best be resolved by the introduction of generational accounts. Using modern portfolio and consumption planning theory we show that the younger generations should have the higher equity exposure due to their human capital. Capital losses should be distributed smoothly over lifetime consumption. When stock markets are depressed equity should be bought, savings and consumption should be scaled down equiproportionally, and retirement should be postponed. Portfolio investment restrictions are quite costly.
Number of Pages in PDF File: 20
Keywords: saving and investment, pension funds, private pensions, social security and public pensions, financial institutions
JEL Classification: E2, G2, G23, J32, H55working papers series
Date posted: January 13, 2004
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