The Pareto-Improving Transition from a Pay-As-You-Go System to a Fully Funded System in a Model of Endogenous Growth

In this paper we investigate the possibilities of Pareto-improving reforms of a pay-as-you-go (PAYG) pension system in a framework of endogenous growth. Belan et al. (1996) propose a transition of a PAYG system to a system of savings--subsidization. We follow this approach and prove that a Pareto-improving conversion from the PAYG system to a fully funded one is possible. Finally, we compare the subsidy system with the fully funded system and analyze the question of whether a PAYG system supplemented by a subsidy scheme can generate the same growth as a fully funded system.