Money and Pay-As-you-Go Pension

Yasuoka, Masaya (2016): Money and Pay-As-you-Go Pension.

Abstract

In an aging society with fewer children, a pay-as-you-go pension system presents severe difficulties. A decrease in the share of working people among the population raises the burden for pensions per capita to maintain a constant replacement ratio of pensions. This burden reduces capital accumulation. Therefore, income growth is prevented. The analyses in this paper demonstrate that if the replacement rate of pension is high, a decrease in population growth reduces the income growth rate even if a decrease in population growth can raise the income growth rate per capita because the capital stock that the workers can use increases. However, by setting an appropriate monetary policy for decreasing population growth, the income growth is not prevented by an increase in the burdens for pensions. The negative effect of the burden for pensions on income growth can be eliminated by the change of the money supply rate in the long run.

• Item Type: MPRA Paper
• Language: English
• Keywords: Income growth, Pay-as-you-go pension, Monetary policy, Fewer children
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; J - Labor and Demographic Economics > J1 - Demographic Economics > J11 - Demographic Trends, Macroeconomic Effects, and Forecasts; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O42 - Monetary Growth Models

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