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Long-Term Uncertainty and Social Security Systems

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New Economics as Mainstream Economics

Part of the book series: International Papers in Political Economy Series ((IPPE))

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Abstract

The existence of ageing processes in the developed economies has led mainstream economics to defend a radical reform of pensions — from the current pay-as-you-go (PAYGO) systems to funded pension systems. The argument is that the latter, in addition to being sheltered from the ageing problem, generate better macroeconomic performance. In our opinion, this view is completely flawed, because it is based on a set of assumptions that are not reflected in the real world. Moreover, it is also based on the consideration that the main objective of a pension system is to generate a market-clearing equilibrium outcome. On the contrary, we argue that this should not be the objective of a pension system; rather, it should be focused on providing individuals with sufficient income to maintain a socially acceptable level of consumption. Starting from this objective, and accepting the existence of uncertainty problems, we argue that current PAYGO pension systems are more efficient than unfunded systems. Moreover, by reducing uncertainty about the future, the PAYGO systems help to stabilise the working of the economy. Therefore, in our opinion, any reform of the current PAYGO pension systems intended to face the challenges of ageing must necessarily maintain the essential nature of these systems.

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Author information

Authors and Affiliations

  1. Department of Applied Economics V, University of the Basque Country, Spain

    Jesús Ferreiro & Felipe Serrano

Authors
  1. Jesús Ferreiro
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  2. Felipe Serrano
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Editor information

Editors and Affiliations

  1. University of Cambridge, UK

    Philip Arestis

  2. University of the Basque Country, Spain

    Philip Arestis

  3. Economics Department, University of Leeds, UK

    Malcolm Sawyer (Professor of Economics and Head) (Professor of Economics and Head)

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© 2011 Jesús Ferreiro and Felipe Serrano

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Ferreiro, J., Serrano, F. (2011). Long-Term Uncertainty and Social Security Systems. In: Arestis, P., Sawyer, M. (eds) New Economics as Mainstream Economics. International Papers in Political Economy Series. Palgrave Macmillan, London. https://doi.org/10.1057/9780230307681_5

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