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Pareto-Improving Transition from Pay-as-you-goto Fully Funded Social Security under Uncertain Incomes

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  • Nils Hauenschild

Abstract

The possibility of a Pareto-improving transition from a pay-as-you-go to a fully funded pension system is discussed intensively in the literature. In this paper, the problem is analyzed within a standard overlapping generations model of a small open economy with stochastic wages. Applying the criterion of conditional Pareto-efficiency we derive a sufficient condition for the fully funded system to be preferred by all future generations and show that, in contrast to deterministic models with inelastic labour supply, a Pareto-improving abolition of the pay-as-you-go system is possible with probability one.

Suggested Citation

  • Nils Hauenschild, 2000. "Pareto-Improving Transition from Pay-as-you-goto Fully Funded Social Security under Uncertain Incomes," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 39-62, September.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200009)57:1_39:ptfpff_2.0.tx_2-9
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    References listed on IDEAS

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    Cited by:

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    2. Eisei Ohtaki, 2023. "Optimality in an OLG model with nonsmooth preferences," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 611-659, September.

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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