Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64467
Authors: 
Rada, Codrina
Year of Publication: 
2012
Series/Report no.: 
Working Paper, University of Utah, Department of Economics 2012-02
Abstract: 
This paper compares fully-funded (FF) and pay-as-you-go (paygo) pension plans in a Keynesian framework for an economy with overlapping generations and excess capacity. The model addresses both short/medium-run equilibria and steady-states. Income distribution and class conflict, two crucial aspects of the political economy of pensions, become multidimensional. In a fully-funded economy class conflict between capitalists and labor gets diffused in the short-run by retirees' own interest to maintain a high profit share. In the longrun capitalists recognize that they can control their net share of profits by controlling employment and therefore the number of future retirees through capital accumulation. An extension of the model can show that fiscal policy is not always helpful in a fully-funded economy. A pay-as-you-go economy maintains a closer resemblance to the classical story of class conflict over income distribution. This is because workers and retirees have their interests aligned with the wage share. In this case fiscal policy through spending can be effective without creating a debt problem.
Subjects: 
private accounts
social security
Keynesian economics
distributive conflict
JEL: 
E24
E12
G23
H55
Document Type: 
Working Paper

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