The Evolution of Public Pension Schemes

ISBN-13: 9783642456558 / Angielski / Miękka / 2012 / 287 str.

Harrie Verbon

Opis

The purpose of this book is to describe and to give a theoretical explanation of the developments of Pay-As-You-Go (PAYG)-financed public pension schemes in democracies from a positive point of view. The book especially tries to grasp the determinants for changes in PAYG-systems. It is shown that if confidence in the continuation of an operative public pension scheme is growing, the conversion from a Capital-Reserve to the PAYG system - which has occurred in the history of most schemes - can be explained out of the self-interest of the generations alive. On the other hand, if a PAYG-system has been operating for a long enough period, then the operation of the system can be explained from altruism just as well. The analysis gives insights into the determinants of the future evolution of PAYG-systems. If the current financial crisis perseveres, the PAYG-scheme will not necessarily be maintained indefinitely. This statement holds even if future young generations are altruistic towards the old and even if the old are in the majority in a representative democracy.

Spis treści

1 Introduction.- 1.1 An introduction to the problem.- 1.2 Outline of the book.- 2 The History of Transfer Payments for the Old.- 2.1 Introduction.- 2.2 The history of old-age transfers before government intervention.- 2.2.1 Introduction.- 2.2.2 Agricultural societies as insurance systems.- 2.2.3 The industrial revolution: breakdown of voluntary transfer systems.- 2.2.4 Social assistance during the industrial revolution.- 2.2.5 General factors explaining the rise of public pension schemes.- 2.3 The history of three public pension plans compared.- 2.3.1 Introduction.- 2.3.2 Germany.- 2.3.3 The Netherlands.- 2.3.4 The United States of America (US).- 2.3.5 The history of the schemes compared.- 2.4 What can we learn from history?.- 2.5 Summary.- 3 The Case for Government Intervention.- 3.1 Introduction.- 3.2 Market failure.- 3.3 Paternalism.- 3.4 Redistribution.- 3.4.1 Introduction.- 3.4.2 Intragenerational redistribution.- 3.4.3 Intergenerational redistribution.- 3.5 Administrative efficiency.- 3.6 Political and economic arguments compared.- 3.7 Summary.- 4 The Choice of Financing Method: Economic Motives.- 4.1 Introduction.- 4.2 Economic considerations.- 4.3 The generalized Aaron-condition.- 4.4 Conversion policies.- 4.4.1 Introduction.- 4.4.2 Conversion policy in a closed economy.- 4.4.3 Conversion policies in a small open economy.- 4.4.4 Qualifications.- 4.5 Summary.- 5 The Choice of Financing Method: Political Motives.- 5.1 Introduction.- 5.2 Decision-making in a direct democracy.- 5.3 A simple decision-making model.- 5.3.1 Introduction.- 5.3.2 Decision-making on the financing system.- 5.3.3 Decision-making on the benefit level.- 5.4 An application to the Netherlands.- 5.5 Generalizations and other models.- 5.5.1 Introduction.- 5.5.2 Imperfections of the capital market.- 5.5.3 Demand for other public goods.- 5.5.4 Hu’s model of uncertainty.- 5.5.5 Decision-making as a dynamic game between generations.- 5.6 Summary.- 6 Tax-Transfer View, Altruism and Political Power.- 6.1 Introduction.- 6.2 The tax-transfer versus the insurance vision.- 6.3 Altruism and the public pension scheme.- 6.3.1 Introduction.- 6.3.2 The premium rate.- 6.3.3 The Aaron-condition.- 6.3.4 The steady-state.- 6.3.5 Concluding remarks.- 6.4 Collective decision-making and public pensions.- 6.4.1 Introduction.- 6.4.2 Public pensions in a representative democracy.- 6.4.3 A model of representative democracy.- 6.5 Altruism and imperfect capital markets.- 6.5.1 Introduction.- 6.5.2 The premium rate.- 6.5.3 The steady-state.- 6.6 Summary.- Appendix 6A Altruism and the Aaron-condition (the non-cooperative case).- Appendix 6B Stackelberg-behavior and future positive savings.- 7 Uncertainty and Redistribution.- 7.1 Introduction.- 7.2 Financing method and redistribution.- 7.2.1 The mechanism of redistribution.- 7.2.2 The independence of financing method and redistribution.- 7.3 Risk aversion and public pension plans.- 7.3.1 Introduction.- 7.3.2 Intragenerational redistribution.- 7.3.3 Intergenerational redistribution.- 7.3.4 Fixed-benefit rate versus fixed-premium rate.- 7.3.5 Constitutional and parliamentary decision-making.- 7.4 Summary.- Appendix 7A Redistribution and financing method: Z generations.- Appendix 7B Intragenerational redistribution.- Appendix 7C Intergenerational redistribution.- 8 The Rise and Evolution of Payg-Systems.- 8.1 Introduction.- 8.2 Survey of models.- 8.3 A decision-making model with uncertainty and constant Aaron-variable.- 8.3.1 Introduction.- 8.3.2 Expectations with regard to the behavior of future generations.- 8.3.3 Decision-making with uncertainty about future behavior.- 8.3.4 Convergence to the steady-state.- 8.4 Public pension plans under a non-constant Aaron-variable.- 8.4.1 Introduction.- 8.4.2 Model I: ‘altruism by habit’ as an explanatory variable.- 8.4.3 Model II: altruism or political power as explanatory variables.- 8.5 The future of the PAYG-system.- 8.5.1 Introduction.- 8.5.2 Pessimistic expectations.- 8.5.3 Optimistic expectations.- 8.5.4 Concluding remarks.- 8.6 Discussion and summary.- 9 Public Pensions in a Small Open Economy.- 9.1 Introduction.- 9.2 The model.- 9.3 A simulation: consumers are certain of the future of the PAYG-scheme.- 9.4 Conversion policies.- 9.5 Decision-making under uncertainty.- 9.6 Summary.- 10 An Evaluation.- 10.1 Introduction.- 10.2 The facts to be explained.- 10.3 Explanations offered in the literature on public pension schemes.- 10.4 The model used.- 10.5 The results obtained.- 10.6 Will PAYG-financed public pension schemes continue to exist?.- Notes.- References.- Author Index.- List of Symbols.