Public Bequests as a Pension Scheme

Governments have phased out pay-as-you-go pension schemes in favor of funded ones. Instead of dropping the intergenerational transfers of the pay-as-you-go pensions, we propose to invert them. In this way, resources would flow from old to young generations as if it were a system of public bequests. We show that the public bequests scheme implements the complete market allocation of human capital investments when credit markets to finance education are missing or imperfect. We also simulate the model and compare the economic effects of the different pension schemes