Should I Pay for You or for Myself? The Optimal Level and Composition of Retirement Benefit Systems

37 Pages Posted: 3 Apr 2001

See all articles by B.M.S. van Praag

B.M.S. van Praag

University of Amsterdam - Faculty of Economics and Business (FEB); IZA Institute of Labor Economics; Tinbergen Institute in Amsterdam; CESifo (Center for Economic Studies and Ifo Institute)

Pedro Cardoso

affiliation not provided to SSRN

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

van Praag, Bernard and Cardoso, Pedro D.M.L., Should I Pay for You or for Myself? The Optimal Level and Composition of Retirement Benefit Systems (January 2001). Available at SSRN: https://ssrn.com/abstract=265626 or http://dx.doi.org/10.2139/ssrn.265626

Bernard Van Praag (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
31 20 5256018 (Phone)
31 20 5256013 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Tinbergen Institute in Amsterdam

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Pedro D.M.L. Cardoso

affiliation not provided to SSRN

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