Should I Pay for You or for Myself? The Optimal Level and Composition of Retirement Benefit Systems
37 Pages Posted: 3 Apr 2001
Date Written: January 2001
Abstract
Feldstein [1985] posed the questions of what would be the optimal level of retirement benefit, and what would be the optimal mix between the pay-as-you-go system and the funded pension system under the assumption of an exogenous interest rate. We reconsider the problem with the addition of a flexible production function and, consequently, an endogenous interest rate. Moreover, we allow the contributions rate to be negative as well. In the case of a negative, the retired subsidize the workers out of their saved capital. This case turns out to be the optimal one in situations of low population growth.
Keywords: Social Security, Pay-As-You-Go Systems, Funded Pensions, Retirement Benefits, Welfare Systems
JEL Classification: D91, E21, H55, J14, J26
Suggested Citation: Suggested Citation