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Intergenerational Redistribution in a Pay-as-you-go Pension System

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Abstract

This study provides a comprehensive analysis of the generational wealth transfer within Sweden’s public pay-as-you-go pension system introduced in 1960. Using extensive administrative registers, the paper quantifies the contributions made and benefits received by each birth cohort. The findings reveal a substantial fiscal imbalance favouring the initial generation (born in the early 20th century), who received a net gain of $1.5 trillion in today’s present value, equivalent to up to 13% of their discounted lifetime income. This windfall for the initial generation resulted in an implicit tax on current workers, accounting for 70% of their pension contributions. However, the study also highlights the effectiveness of Sweden’s 1999 notional defined-contribution pension reform in stabilizing this imbalance. Unlike many international counterparts, Sweden’s reformed system successfully mitigates further generational inequities in the pension system.

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  • Lundberg, Jacob, 2024. "Intergenerational Redistribution in a Pay-as-you-go Pension System," Working Paper Series 1488, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1488
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    Keywords

    Pensions; Social security; Pay-as-you-go; Generational equity; Generational accounting;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • N34 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Europe: 1913-

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