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The Effects of Financing Rules in Pay-As-You-Go Pension Systems on the Life and the Business Cycle

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Abstract
I study the impacts of financing rules for financial surpluses in pay-as-you-go pension systems on the business cycle and the life cycle in a dynamic stochastic large-scale overlapping generations model, where households take the inter-temporal links between contributions and pension benefits explicitly into account. The results point out that sluggish adjustments of contribution rates that are implemented by adjusting a financial buffer stock both stabilize an economy and decrease the volatility of life-time utilities of retirees and workers close to retirement. Such a policy allows these households a better hedge against macroeconomic shocks over the business cycle. Moreover, I show that the impacts of higher fluctuations of aggregate variables on the volatility of individual lifetime utilities can rather be negligible.

Suggested Citation

  • Christian Scharrer, 2020. "The Effects of Financing Rules in Pay-As-You-Go Pension Systems on the Life and the Business Cycle," Discussion Paper Series 340, Universitaet Augsburg, Institute for Economics.
  • Handle: RePEc:aug:augsbe:340
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    References listed on IDEAS

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    1. Kathrin Rochlitz, 2015. "Net Pension Replacement Rates," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(2), pages 70-72, 08.
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    3. Dirk Krueger & Felix Kubler, 2006. "Pareto-Improving Social Security Reform when Financial Markets are Incomplete!?," American Economic Review, American Economic Association, vol. 96(3), pages 737-755, June.
    4. Heer, Burkhard & Maußner, Alfred, 2012. "The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 16(2), pages 278-308, April.
    5. Michael Flor, 2014. "Post Reunification Economic Fluctuations in Germany: A Real Business Cycle Interpretation," Working Papers 146, Bavarian Graduate Program in Economics (BGPE).
    6. Flor Michael, 2014. "Post reunification economic fluctuations in Germany: a real business cycle interpretation," Review of Business and Economics Studies, CyberLeninka;Федеральное государственное образовательное бюджетное учреждение высшего профессионального образования «Финансовый университет при Правительстве Российской Федерации» (Финансовый университет), issue 4, pages 5-17.
    7. Andreas Wagener, 2003. "Pensions as a portfolio problem: fixed contribution rates vs. fixed replacement rates reconsidered," Journal of Population Economics, Springer;European Society for Population Economics, vol. 16(1), pages 111-134, February.
    8. William B. Peterman, 2016. "Reconciling Micro And Macro Estimates Of The Frisch Labor Supply Elasticity," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 100-120, January.
    9. Busl, Claudia & Seymen, Atılım, 2013. "The German labour market reforms in a European context: A DSGE analysis," ZEW Discussion Papers 13-097, ZEW - Leibniz Centre for European Economic Research.
    10. Trabandt, Mathias & Uhlig, Harald, 2011. "The Laffer curve revisited," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 305-327.
    11. Heer, Burkhard & Maußner, Alfred, 2012. "The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 16(2), pages 278-308, April.
    12. Kathrin Rochlitz, 2015. "Net Pension Replacement Rates," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(02), pages 70-72, August.
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    Cited by:

    1. Besime ZIBERI & Rrezarta GASHI & Luljeta HALITI & Audenta HALITI, 2021. "The Perception Of Employees On The Mandatory Pension Savings In Case Of Kosovo," Management and Marketing Journal, University of Craiova, Faculty of Economics and Business Administration, vol. 0(1), pages 98-107, May.

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    More about this item

    Keywords

    overlapping generations; pay-as-you-go pension systems; financing rules; business cycle; life cycle; rbc-model;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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