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Designing the optimal public pension system
Author(s) -
Fujii Takao,
Hayashi Fumiaki,
Iritani Jun,
Oguro Kazumasa
Publication year - 2017
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12077
Subject(s) - consumption (sociology) , overlapping generations model , economics , pension , preference , homogeneous , order (exchange) , pension system , microeconomics , population , econometrics , mathematics , finance , demography , social science , combinatorics , sociology
This paper uses a two‐period overlapping generations model in order to provide a theoretical design for the optimal public pension system based on a partial equilibrium analysis. Household preferences depend on two periods' consumption and leisure and are positively homogeneous of degree m with respect to consumption in the working and retired periods. We present characteristic features of the optimal public pension system in this paper. First, differences in the population growth rate do not affect the large/small relation between the optimal net lifetime burden rates of generations. Second, we present the optimal public pension system explicitly if m < 1 and m ≠ 0. Third, the difference between the market time‐preference rate and the social time‐preference rate provides a crucial insight into the optimal burden rate of each generation.