Gomes, Francisco and Michaelides, Alexander
Aggregate implications of defined benefit and defined contribution systems.
Discussion paper: UBS Pensions Series 018,
Financial Markets Group, London School of Economics and Political Science, London, UK.
We use a general equilibrium life-cycle model with incomplete markets and heterogeneous agents to evaluate the macroeconomic and welfare implications of Defined Benefit (DB) versus Defined Contribution (DC) systems, and to investigate the effects of incremental reform within a particular system. Extensive calibrations illustrate the trade-off between efficiency and redistribution that a tax-financed, DB social security system generates. We find that social welfare is maximized for small but positive levels of DB because of the redistributive value associated with these systems. On the other hand, steady-state within- DC system comparisons reveal that a zero DC tax rate maximizes social welfare.
||© 2003 The Authors
||General equilibrium, Liquidity constraints, Heterogeneous agents, Undiversifiable labor income, Defined benefit systems, Defined contribution systems
|Library of Congress subject classification:
||H Social Sciences > HF Commerce
H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Journal of Economic Literature Classification System:
||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
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