Aging and Public Pensions in an Overlapping-Generations Model

In this paper decision making on public pensions is modeled within the framework of the well-known two-overlapping-generations general-equilibrium model with rational expectations. The model is used to analyze the effects of aging on the evolution of public pension schemes. Analytical results are derived for the long run as well as for the short run by the method of comparative statics and comparative dynamics respectively. This shows that the short-run consequences of aging depend crucially on the existing size of the PAYG-scheme.