Pareto Improving Transition from a Pay-as-You-Go to a Fully Funded Pension System in a Model of Endogenous Growth: The Impact of Uncertainty
30 Pages Posted: 23 May 2010
Date Written: March 10, 2009
This paper analyzes the transition from a pay-as-you-go to a fully funded pension system within the framework of endogenous growth in the presence of uncertainty. Gyárfás and Marquardt (2001) prove the possibility of a Pareto improving conversion in a certain world. Two distinct kinds of uncertainty are being analyzed in this paper: an uncertain global productivity and uncertain wages. The main result states that a Pareto improving transition is not always possible in case of uncertain wages: The amount of precautionary savings, accumulated because of the presence of uncertainty, will constitute the determining factor.
Keywords: pensions, transition, endogenous growth, uncertainty, precautionary savings
JEL Classification: H55
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