Social Security Reform in Advanced Countries: Evaluating Pension Finance

By Toshihiro Ihori; Toshiaki Tachibanaki | Go to book overview

Golden-Rule criterion is found to be valid with regard to financing a fixed public pension benefit, though this is not the case for introducing a public pension programme. It is shown that first the benefit levels affect the long-term economic welfare as well as the relative cost advantage of public pensions; second a public pension programme must provide a sufficiently large level of benefit if it is to be introduced in at all, and third implementing mandatory participation in private annuity plans will improve efficiency in cases where a public programme is abolished.

Chapter 12, by Toshihiro Ihori, investigates dynamic implications of pension contributions and intergenerational transfers under modified funded systems. By incorporating interest groups' contributions to social security funds into the conventional overlapping generations model, the chapter explores a long-term policy of public spending, social security fund and economic growth. Favourable economic conditions will not necessarily lead to high growth in pension funds. The pension fund is too little in terms of the static efficiency (or compared with private consumption) but may be too much or too little in terms of dynamic efficiency (or as the steady state level). This chapter finally examines the normative role of taxes on consumption and pension contributions. It is shown that consumption taxes or a subsidy to social security contributions would always be desirable even if the pension fund is overaccumulated. If a government can control the replacement ratio so as to realize the modified Golden Rule, it would attain dynamic efficiency.


References
Aaron, H. J. (1999) 'Social security: tune it up, don't trade it in,' in H. J. Aaron and J. B. Shoven (eds) Should The United States Privatizee Social Security? Cambridge: MIT Press, pp. 55-112.
Boldrin, M., Dolado, J. J., Jimeno, J. F. and Peracchi, F. (1999) 'The future of pensions in Europe,' Economic Policy, October, 289-320.
Chand, S. K. and Jaeger, A. (1996) Aging Populations and Public Pension Schemes, Occasional Paper No. 147, IMF.
Diamond, P. (ed.) (1999) Issues in Privatizing Social Security, Cambridge: MIT Press.
Disney, R. (2000) 'Crisis in public pension programmes in OECD: what are the reform options?' Economic Journal, 110, 461, F1-F23.
Edwards, S. and Edwards, A. (1991) Monetarism and Liberalization: The Chilean Experiment, Chicago: University of Chicago.
Feldstein, M. (ed.) (1998) Privatizing Social Security, Chicago: University of Chicago Press.
Kotlikoff, L. (1996) 'Privatizing social security at home and abroad,' American Economic Review, 86, 2, 368-372.
Miles, D. and Timmermann, A. (1999) 'Risk sharing and transition costs in the reform of pension systems in Europe,' Economic Policy, October, 253-285.
Mitchell, O. and Zeldes, S. (1996) 'Social security privatization: a structure for analysis,' American Economic Review, 86, 2, 363-367.
OECD (1996) Aging in OECD Countries: A Critical Policy Challenge, Social Policy Studies, No. 20.

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