Munich Personal RePEc Archive

PAYG pensions and economic cycles

Fanti, Luciano and Gori, Luca (2010): PAYG pensions and economic cycles.

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Abstract

This article analyses the dynamics of an overlapping generations economy (Diamond, 1965) with pay-as-you-go financed public pensions and myopic expectations. It is shown that large PAYG pensions triggers economic fluctuations depending on the mutual relationship between technology and preference parameters. Our findings constitute a policy warning about the size of social security and provide another explanation of the occurrence of persistent cycles.

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