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Can Pay‐as‐You‐Go Pensions Raise the Capital Stock?

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  • Mark A. Roberts

Abstract

We reconsider pay‐as‐you‐go (PAYG) pension policy in a version of the Diamond overlapping generations model with an imperfectly competitive financial sector and with a low rate of tax on its profits. PAYG then has two effects on capital: the well‐known negative crowding‐out effect in displacing savings and a positive effect in reducing a second form of crowding‐out caused by the displacement of ‘productive savings’ in capital by ‘non‐productive savings’ in financial sector equity. These two countervailing effects may generate a hump‐shaped steady‐state relationship between the PAYG contribution rate and the capital stock.

Suggested Citation

  • Mark A. Roberts, 2003. "Can Pay‐as‐You‐Go Pensions Raise the Capital Stock?," Manchester School, University of Manchester, vol. 71(s1), pages 1-20, September.
    • Handle: RePEc:bla:manchs:v:71:y:2003:i:s1:p:1-20
    DOI: 10.1111/1467-9957.71.s.1
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    Cited by:

    1. Mario Holzner & Stefan Jestl & David Pichler, 2022. "Public and private pension systems and macroeconomic volatility in OECD countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(2), pages 131-168, May.
    2. Kojun Hamada & Akihiko Kaneko & Mitsuyoshi Yanagihara, 2024. "Impact of PAYG pensions on country welfare through capital accumulation," International Economics and Economic Policy, Springer, vol. 21(1), pages 207-226, February.

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