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On sustainable pay as you go systems

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  • Gabrielle Demange

    (PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

An unfunded Social Security system faces the major risk, sometimes referred to as "political risk", that future generations modify or even suppress the contributions. In order to account properly for this risk, the paper considers a political process in which the support to the system is asked from each new born generation. The analysis is conducted in an overlapping generations economy that is subject to macro-economic shocks. As a consequence, the political support varies with the evolution of the economy. The impact of various factors -intra-generational redistribution, risk aversion, financial markets, governmental debt- on the political sustainability of a pay-as-you-go system is discussed.

Suggested Citation

  • Gabrielle Demange, 2005. "On sustainable pay as you go systems," PSE Working Papers halshs-00590859, HAL.
    • Handle: RePEc:hal:psewpa:halshs-00590859
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00590859
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    References listed on IDEAS

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    Cited by:

    1. Gabay, Daniel & Grasselli, Martino, 2012. "Fair demographic risk sharing in defined contribution pension systems," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 657-669.
    2. Hollanders, D.A., 2010. "The Political Economy of Intergenerational Risk Sharing," Other publications TiSEM 3c50ad85-2971-481e-9aa3-a, Tilburg University, School of Economics and Management.
    3. Hollanders, D.A., 2010. "The Political Economy of Intergenerational Risk Sharing," Discussion Paper 2010-102, Tilburg University, Center for Economic Research.
    4. Cetin, Sefane & Hindriks, Jean, 2023. "Sustainability of pension reforms: An EU-wide political stress," LIDAM Discussion Papers CORE 2023016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    pay-as-you-go; intra-generational redistribution; overlapping generations; social security system; political economy; risk;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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