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THE CASE FOR PAY‐AS‐YOU‐GO PENSIONS IN A SERVICE ECONOMY
Author(s) -
Van Groezen Bas,
Meijdam Lex,
Verbon Harrie A. A.
Publication year - 2007
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2007.00409.x
Subject(s) - inefficiency , economics , welfare , golden rule , labour economics , service (business) , capital (architecture) , tertiary sector of the economy , stock (firearms) , monetary economics , economy , microeconomics , market economy , mechanical engineering , philosophy , theology , archaeology , engineering , history
The elderly consume more labour‐intensive services than young individuals. This makes them vulnerable to rising costs of services due to higher wages, which can be caused by increased capital accumulation. This paper shows that in a model with a service sector, the golden‐rule capital stock is lower and dynamic inefficiency is more likely to occur than in the conventional one‐sector model. This implies that in many cases, a positive Pay‐As‐You‐Go tax maximises long‐run welfare in a service economy. Calculations based on data from the United Kingdom and the Netherlands show that the long‐run optimal degree of funding coincides with the current situation in these countries.