The Intergenerational Welfare State

48 Pages Posted: 29 Aug 2013

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Joydeep Bhattacharya

Iowa State University - Department of Economics

Date Written: August 28, 2013

Abstract

The welfare state is not merely a stand-in for missing markets; it can do a whole lot more. When generations overlap and the young must borrow to make educational investments, a dynamically-efficient welfare state, by taxing the middle-aged and offering a compensatory old-age pension, can generate higher long-run human capital and welfare compared to laissez faire. Along the transition, no generation is hurt and some are better off. If an intergenerational human capital externality is present, unfunded pensions can be gradually phased out entirely. Public pension reform can be rationalized on efficiency grounds without relying on political-economy concerns or aging.

JEL Classification: H000

Suggested Citation

Andersen, Torben M. and Bhattacharya, Joydeep, The Intergenerational Welfare State (August 28, 2013). CESifo Working Paper Series No. 4359, Available at SSRN: https://ssrn.com/abstract=2317246

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Joydeep Bhattacharya

Iowa State University - Department of Economics ( email )

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United States
515-294-5886 (Phone)
515-294-0221 (Fax)

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