Longevity and Pay-as-You-Go Pensions

CORE Discussion Paper No. 2006/54

19 Pages Posted: 23 Aug 2006

See all articles by Pierre Pestieau

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Gregory Ponthiere

University of Cambridge - Faculty of Economics and Politics

Motohiro Sato

Hitotsubashi University - Faculty of Economics

Date Written: June 2006

Abstract

This paper aims at investigating whether or not a utilitarian social planner should subsidize longevity-enhancing expenditures in an economy with a PAYG pension system. For that purpose, a simple two-period OLG model is developed, in which the length of the second period of life can be raised by private health spendings. Focussing on the steady-state, it is shown that the sign of the optimal subsidy on health expenditures tends to be negative when the replacement ratio is sufficiently large. Moreover, the optimal health subsidy is also shown to depend significantly on the longevity production process and on the production technology.

Keywords: longevity, health care, PAYG social security

JEL Classification: E13, E21

Suggested Citation

Pestieau, Pierre and Ponthiere, Gregory and Sato, Motohiro, Longevity and Pay-as-You-Go Pensions (June 2006). CORE Discussion Paper No. 2006/54, Available at SSRN: https://ssrn.com/abstract=926038 or http://dx.doi.org/10.2139/ssrn.926038

Pierre Pestieau (Contact Author)

University of Liège - Research Center on Public and Population Economics ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

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Louvain la Neuve
Belgium

Gregory Ponthiere

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Motohiro Sato

Hitotsubashi University - Faculty of Economics ( email )

Tokyo, 186-8601
Japan

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