Discussion Paper Details

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Title: Pension systems, Intergenerational Risk Sharing and Inflation

Author(s): Roel Beetsma and A Lans Bovenberg

Publication Date: February 2007

Keyword(s): (funded) pensions, fiscal policy, nominal assets, overlapping generations and risk sharing

Programme Area(s): International Macroeconomics

Abstract: We investigate intergenerational risk sharing in two-pillar pension systems with a pay-as-you-go pillar and a funded pillar. We consider shocks in productivity, depreciation of capital and inflation. The funded pension pillar can be either defined contribution or defined benefit, with benefits defined in real or nominal terms or indexed to wages. Optimal intergenerational risk sharing can be achieved only in the presence of a defined benefit pension system with appropriate restrictions on investment policy of the funded pillar. In this way, both generations have similar exposures to financial and human capital risks.

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Bibliographic Reference

Beetsma, R and Bovenberg, A. 2007. 'Pension systems, Intergenerational Risk Sharing and Inflation'. London, Centre for Economic Policy Research.