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In this question, we consider a problem which arises when we switch our pension system from PAYG to FF. Suppose that a PAYG pension system is in effect until t-1 and the government switches to the FF system at the beginning of period t. This reform is not anticipated. To avoid inter-generational inequality, the government subsidizes the old in t, which is financed by issuing government bonds, and imposes lump-sum tax, 7, on the young in all subsequent generations. For simplicity, we ignore capital accumulation: k is constant over time, so are w and r. And assume n < r. (a) How much of total subsidies are required to keep the same life-time budget for generation t 1 before and after the reform? (b) The government continues to impose a constant lump-sum tax, 7, on the young forever to finance the subsidies for generation t - 1. Derive T. (c) Do you think this pension reform improves welfare? In this question, we consider a problem which arises when we switch our pension system from PAYG to FF. Suppose that a PAYG pension system is in effect until t-1 and the government switches to the FF system at the beginning of period t. This reform is not anticipated. To avoid inter-generational inequality, the government subsidizes the old in t, which is financed by issuing government bonds, and imposes lump-sum tax, 7, on the young in all subsequent generations. For simplicity, we ignore capital accumulation: k is constant over time, so are w and r. And assume n < r. (a) How much of total subsidies are required to keep the same life-time budget for generation t 1 before and after the reform? (b) The government continues to impose a constant lump-sum tax, 7, on the young forever to finance the subsidies for generation t - 1. Derive T. (c) Do you think this pension reform improves welfare?
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a Subsidies required to keep the same lifetime budget for generation t1 before and after reform In order to keep the same lifetime budget for generati... View the full answer
Related Book For
Computer Networking A Top-Down Approach
ISBN: 978-0136079675
5th edition
Authors: James F. Kurose, Keith W. Ross
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