The Economy of Obligation: Incomplete Contracts and the Cost of the Welfare State

Western governments usually are sent about 30% of GDP for social purposes. Financing is carried out due to tax payments through the system of taxes from current revenue (hereinafter - PAYGO, pay-as-you-go). How effective such transfers, and whether the market or other mechanisms to improve this process? The problem occurs because no individual does not exist in itself. During the life cycle there are several periods inevitable dependency, when people do not earn or may not be a lot to offer: maternity, infancy, childhood, education, sickness, disability, unemployment, old age. The problem is how to move resources from the "manufacturers" to the "dependency ratio" throughout the life cycle. Market solution for individuals is the accumulation of financial assets and their expulsion for life cycle by long-term contracts with financial intermediaries.