Working Paper

The effects of annuities, bequests, and aging in an overlapping generations model of endogenous growth.

Abstract: In this paper, we examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth. We find the complete annuitization of agents' wealth is not, in general, dynamically optimal; that the degree of annuitization that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay-as-you-go social security tax rate. We find that the government has an incentive to restrict the availability of actuarially fair annuities contracts, and that it can often move the economy from a pay-as-you-go to a fully-funded social security system via voluntary contributions to a government sponsored, actuarially fair pension today accompanied by reductions in social security taxes tomorrow.

Keywords: Wealth; Old age;

Status: Published in Economic Journal, 107 (440) January 1997, pp 26-46

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 1995

Number: 1995-008