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