Munich Personal RePEc Archive

Could pension system make us happier?

Shin, Inyong (2015): Could pension system make us happier?

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Abstract

We have analyzed the effect of a pension system on life expectancy and happiness level using a cross country data and an optimal dynamic problem of individuals who live in continuous and finite time. From the data and the optimization problem, we have found the following; 1) happiness can be almost explained by income per capita, 2) depending on the level of income per capita, the pension system can make lifespan longer or shorter and can raise or reduce the level of happiness, 3) the extension of lifespan without the income support may not always make our happiness higher, 4) under government budget constraint, even though pension system can make the lifespan longer, pension system cannot make the happiness level higher and can rather raise problems for aging population. The public pension system, which is a compulsory saving, can crowd out the private savings and can prevent individual's utility maximization. This paper suggests that it is not always true that the pension system improves happiness level and that it may be necessary for us to reconsider about the reason for existence of the compulsory pension.

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