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The commitment value of funding pensions

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  • Jean-Denis Garon

Abstract

This paper studies how funding public pensions can improve policy outcomes when short-sighted governments cannot commit. We focus on sustainable plans, where op-timal nonlinear pensions are not reneged on by sequential governments. Funding pen-sions is a commitment mechanism. It implies lower contributions than does the second best policy, which reduces temptation to over-redistribute later and to misuse revealed private information. Funding may be preferable even if the population growth rate is higher than the rate of return on assets. Second best optimal policies are also more likely to be renegotiation proof under fully funded pensions.

Suggested Citation

  • Jean-Denis Garon, 2016. "The commitment value of funding pensions," Cahiers de recherche 1602, Chaire de recherche Industrielle Alliance sur les enjeux économiques des changements démographiques.
    • Handle: RePEc:lvl:criacr:1602
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    Cited by:

    1. Yundan Guo & Li Shen, 2023. "Commercial Retirement FOFs in China: Investment and Persistence Performance Analysis," Sustainability, MDPI, vol. 15(18), pages 1-22, September.

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    More about this item

    Keywords

    Pensions; Commitment; Redistribution; Funding;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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