Pension Contributions and Capital Accumulation

In recent times, much attention has been given to the long-run macroeconomic and intergenerational redistribution effects of public pension reform. It is well recognized that the pay-as-you-go system is not attractive when the rate of population growth is declining in an ageing society. However, the movement from pay-as-you-go financing to full funding is hard in terms of intergenerational equity, just as reducing the public debt-GDP ratio is hard. Researchers have investigated mechanisms under which a decentralized economy might successfully change from a public pay-as-you-go pension scheme to private fully funded schemes. There have been several important attempts to investigate such pension reforms. The standard analysis is of simulation studies using overlapping generations models based on Auerbach and Kotlikoff (1987). Cifuentes and Valdes-Prieto (1997), among others, offer the insightful result from a simulation model that describes the transition in detail, year by year. Mulligan and Sala-i-Martin (1999a,b) present a useful survey of various theories of social security.1 Hatta and Oguchi (1999) develop the simulation study on Japanese pension reforms; see also Ihori (2002) and Oshio (2004).