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Aging, Myopia, and the Pay‐As‐You‐Go Public Pension Systems of the G7: A Bright Future?
Author(s) -
PECCHENINO ROWENA A.,
POLLARD PATRICIA S.
Publication year - 2005
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2005.00212.x
Subject(s) - beneficiary , economics , pension , welfare , public economics , overlapping generations model , pension system , longevity , offset (computer science) , endogenous growth theory , macroeconomics , economic growth , finance , market economy , medicine , gerontology , computer science , programming language , human capital
Public pension systems of the G7 countries were established in an era when contributors far outnumbered 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 endogenous growth overlapping generations model. We analyze individuals’ behavior when their expectations regarding longevity are rational or myopic, and examine whether policies exist that can offset any adverse effects of aging. We find that while perfectly anticipated aging is welfare improving, myopia worsens welfare, puts pension systems at risk, and cannot be easily remedied by public policy.