The Commitment Value of Prefunded Pensions

Arbeitspapier

This paper studies how prefunding public pensions can improve policy outcomes when short-sighted governments cannot commit. We focus on sustainable plans, where optimal nonlinear pensions are not reneged on by sequential governments. Prefunding pensions is a commitment mechanism. It implies lower contributions than does the second best policy, which reduces temptation to over-redistribute later and to misuse revealed private information. Prefunding may be preferable even if the population growth rate is higher than the rate of return on assets. Second best optimal policies are also more likely to be renegotiation proof under prefunding.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5658

Classification and Topics

• Classification: Wirtschaft ; Social Security and Public Pensions ; Fiscal Policies and Behavior of Economic Agents: Household
• Subject: pensions ; commitment ; redistribution ; prefunding

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Garon, Jean-Denis
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/128353
• Last update: 10.03.2025, 11:44 AM CET