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Public social security systems may provide diversification of risks to individuals' life-time income. Capturing that a pay-as-you-go program (paygo) may be considered as a "quasi-asset", we study the optimal size of the social security program as well as the optimal split between a funded part...
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intergenerational distribution of income risk. If the pension benefit is a fixed proportion of previous income, a pay-as-you-go program … increases the income risk of all generations. On the other hand, a pay-as-you-go program characterized by a fixed inome tax rate … and uncertain pension benefits provides intergenerational risk sharing. …
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