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.