Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128353
Authors: 
Garon, Jean-Denis
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5658
Abstract: 
This paper studies how prefunding public pensions can improve policy outcomes when short-sighted governments cannot commit. We focus on sustainable plans, where optimal nonlinear pensions are not reneged on by sequential governments. Prefunding pensions 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. Prefunding 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 prefunding.
Subjects: 
pensions
commitment
redistribution
prefunding
JEL: 
H55
H31
Document Type: 
Working Paper

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