CRIEFF Discussion Paper Number 0002

CRIEFF Discussion Paper Number 0504

On the Possibility of Pareto-improving Pension Reform

Tatiana Damjanovic

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Abstract
The aim of this paper is two-fold. First, it provides a simple framework for the analyses of the transitions between two steady states with different fiscal policies. This allows us to clarify the existing results on the possibility of Pareto-improving transitions from pay-as-you-go to fully funded pension systems. We show that the reduction in the marginal tax rate is a sufficient condition for the possibility of such pension reforms. Second, the paper investigates the features and the duration of the shortest Pareto-improving pension reform in an open economy.

JEL Classifications
H21, H55, E62
Keywords
Pension reform, Pareto-improving transition, the shortest transition.

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