Working Paper: CEPR ID: DP3773
Authors: Alessandra Casarico; Carlo Devillanova
Abstract: This Paper analyses the general equilibrium implications of reforming pay-as-you-go pension systems in an economy with heterogeneous agents, human capital investment and capital-skill complementarity. It shows that increasing funding in the long-run delivers higher physical and human capital and therefore higher output, but also higher wage and income inequality. The latter affects preferences over the degree of redistribution of the remaining pay-as-you-go component: despite the greater role that redistribution could perform in the new steady state, we find a preference for lower redistribution for a larger group of the population.
Keywords: capital-skill complementarity; fully funded; inter and intragenerational redistribution; pay-as-you-go
JEL Codes: H55; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing funding (I22) | higher physical and human capital (J24) |
| higher physical and human capital (J24) | higher output (E23) |
| higher output (E23) | higher wage and income inequality (J31) |
| higher wage and income inequality (J31) | preferences for lower redistribution (D39) |
| cut in payroll tax rate (H29) | increase in desired amount of redistribution for lower-wage individuals (H31) |
| capital-skill complementarity effects (J24) | shift towards lower redistribution preferences (D39) |