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Welfare and Generational Equity in Sustainable Unfunded Pension Systems

By Alan J. Auerbach and Ronald Lee


conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, or the NBER. Ed Palmer and Ole Settergren gave us valuable comments and advice that helped us model the actual Swedish system. Alex Ludwig provided comments and very helpful information for modeling the German system. We also thank participants in the NBER Summer Institute, the NBER Public Economics Program meeting, including our discussant Peter Diamond, and a seminar at Stockholm University for comments on earlier drafts, and gratefully acknowledge the assistance of Anne Moore, Erin We evaluate several actual and hypothetical sustainable PAYGO pension structures, including: (1) versions of the US Social Security system with annual adjustments of taxes or benefits to maintain fiscal balance; (2) Sweden’s Notional Defined Contribution system and several variants developed to improve fiscal stability; and (3) the German system, which also includes annual adjustments to maintain fiscal balance. For each system, we present descriptive measures of uncertainty in representative outcomes for a typical generation and across generations. We then estimate expected utility for generations based on simplifying assumption

Year: 2008
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