Aging, Myopia, and the Pay-As-You-Go Public Pension Systems of the G7: A Bright Future?

Pecchenino, Rowena A. and Pollard, Patricia S. (2005) Aging, Myopia, and the Pay-As-You-Go Public Pension Systems of the G7: A Bright Future? Journal of Public Economic Theory , 7 (3). pp. 449-470. ISSN 1097-3923

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The public pension systems of the G7 countries were established in an era when the number of contributors far outweighed the number of beneficiaries. Now, for each beneficiary there are fewer contributors, and this trend is projected to accelerate. To evaluate the prospects for these economies we develop an overlapping generations model where growth is endogenously fueled by investments in physical and human capital. We analyze individuals’ behavior when their expectations over their length of life are rational or myopic and examine whether policies exist that can offset the effects of aging, should they be adverse. We find that while perfectly anticipated aging is welfare improving and does not threaten the solvency of public pension systems, myopia worsens welfare, puts pension systems at risk, and cannot be easily remedied by public policy.

Item Type: Article
Additional Information: Preprint version of original published article. The definitive version is available at DOI: 10.1111/j.1467-9779.2005.00212.x
Keywords: myopia; public pension; endogenous growth; aging;
Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
Item ID: 2805
Identification Number: DOI: 10.1111/j.1467-9779.2005.00212.x
Depositing User: Prof. Rowena Pecchenino
Date Deposited: 26 Oct 2011 14:30
Journal or Publication Title: Journal of Public Economic Theory
Publisher: Wiley-Blackwell
Refereed: No

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