Working Paper: NBER ID: w8487
Authors: Martin Feldstein
Abstract: This paper discusses a possible solution to the double problem that faces European governments in dealing with the future of Social Security pensions. Like other governments around the world, they must deal with the rising cost of pensions that will result from the increasing life expectancy of the population. But the European governments have the extra problem that any solution must be compatible with a European Union labor market in which individuals from any member country are free to work anywhere within the European Union. The solution to this double problem that is developed in this paper combines an investment-based system of individual accounts with a 'notional defined contribution' system financed by pay-as-you-go taxes.
Keywords: social security; pensions; Europe
JEL Codes: H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Demographic changes (J11) | Pension funding pressures (J32) |
| Pay-as-you-go system (H55) | Pension funding pressures (J32) |
| Investment-based system (G11) | Lower contributions for same retirement benefits (J26) |
| Investment-based system (G11) | Higher expected benefits (H55) |
| Pay-as-you-go system (H55) | Lower expected benefits (J32) |
| Investment-based system (G11) | Risk of lower benefits compared to pay-as-you-go (H55) |
| Investment-based system (G11) | Reduced financial burden on governments (H69) |