Mandatory pensions are a worldwide phenomenon. However, with fixed contribution rates, monthly benefits, and retirement ages, pension systems are not consistent with three long-run trends: declining mortality, declining fertility, and earlier retirement. Many systems need reform. This book gives an extensive nontechnical explanation of the economics of pension design. The theoretical arguments have three elements: * Pension systems have multiple objectives-consumption smoothing, insurance, poverty relief, and redistribution. Good policy needs to bear them all in mind. * Good analysis should be framed in a second-best context- simple economic models are a bad guide to policy design in a world with imperfect information and decision-making, incomplete markets and taxation. * Any choice of pension system has risk-sharing and distributional consequences, which the book recognizes explicitly. Barr and Diamond's analysis includes labor markets, capital markets, risk sharing, and gender and family, with comparison of PAYG and funded systems, recognizing that the suitable level of funding differs by country. Alongside the economic principles of good design, policy must also take account of a country's capacity to implement the system. Thus the theoretical analysis is complemented by discussion of implementation, and of experiences, both good and bad, in many countries, with particular attention to Chile and China.
Nicholas Barr is Professor of Public Economics at the London School of Economics, the author of numerous books and articles, and a Trustee of HelpAge International. He spent two periods at the World Bank working on income transfers in Central and Eastern Europe and has been a Visiting Scholar at the Fiscal Affairs Department at the IMF. He has been active in debates about pension reform and higher education finance, advising governments in the post-communist countries, and in the UK, Australia, Chile, China, Hungary, New Zealand and South Africa. Peter Diamond is an Institute Professor and professor of economics at MIT where he has taught since 1966. He has been President of the American Economic Association, of the Econometric Society, and of the National Academy of Social Insurance. He first consulted to U.S. Congress about Social Security reform in 1974. He has consulted about social security to the World Bank and has written about social security in Chile, China, France, Germany, Italy, the Netherlands, Spain, Sweden and the UK as well as the US.
Show moreMandatory pensions are a worldwide phenomenon. However, with fixed contribution rates, monthly benefits, and retirement ages, pension systems are not consistent with three long-run trends: declining mortality, declining fertility, and earlier retirement. Many systems need reform. This book gives an extensive nontechnical explanation of the economics of pension design. The theoretical arguments have three elements: * Pension systems have multiple objectives-consumption smoothing, insurance, poverty relief, and redistribution. Good policy needs to bear them all in mind. * Good analysis should be framed in a second-best context- simple economic models are a bad guide to policy design in a world with imperfect information and decision-making, incomplete markets and taxation. * Any choice of pension system has risk-sharing and distributional consequences, which the book recognizes explicitly. Barr and Diamond's analysis includes labor markets, capital markets, risk sharing, and gender and family, with comparison of PAYG and funded systems, recognizing that the suitable level of funding differs by country. Alongside the economic principles of good design, policy must also take account of a country's capacity to implement the system. Thus the theoretical analysis is complemented by discussion of implementation, and of experiences, both good and bad, in many countries, with particular attention to Chile and China.
Nicholas Barr is Professor of Public Economics at the London School of Economics, the author of numerous books and articles, and a Trustee of HelpAge International. He spent two periods at the World Bank working on income transfers in Central and Eastern Europe and has been a Visiting Scholar at the Fiscal Affairs Department at the IMF. He has been active in debates about pension reform and higher education finance, advising governments in the post-communist countries, and in the UK, Australia, Chile, China, Hungary, New Zealand and South Africa. Peter Diamond is an Institute Professor and professor of economics at MIT where he has taught since 1966. He has been President of the American Economic Association, of the Econometric Society, and of the National Academy of Social Insurance. He first consulted to U.S. Congress about Social Security reform in 1974. He has consulted about social security to the World Bank and has written about social security in Chile, China, France, Germany, Italy, the Netherlands, Spain, Sweden and the UK as well as the US.
Show morePreface
1: The backdrop
PART I: Principles
2: Core purposes of pension systems
3: Basic features of pension systems
4: The basic economics of pensions
5: Pensions and labor markets
6: Finance and funding
7: Redistribution and risk sharing
8: Gender and family
9: Implementing pensions
10: Conclusion to Part I
PART II: Policy choices
11: International diversity and change
12: Chile: The pension system
13: Chile: Proposed directions for reform
14: China: The pension system
15: China: Potential directions for reform
PART III: Conclusion
16: Policy questions, and some answers
Nicholas Barr is Professor of Public Economics at the London School
of Economics, the author of numerous books and articles, and a
Trustee of HelpAge International. He spent two periods at the World
Bank working on income transfers in Central and Eastern Europe and
has been a Visiting Scholar at the Fiscal Affairs Department at the
IMF. He has been active in debates about pension reform and higher
education finance, advising governments in the
post-communist countries, and in the UK, Australia, Chile, China,
Hungary, New Zealand and South Africa.
Peter Diamond is an Institute Professor and professor of economics
at MIT where he has taught since 1966. He has been President of the
American Economic Association, of the Econometric Society, and of
the National Academy of Social Insurance. He first consulted to
U.S. Congress about Social Security reform in 1974. He has
consulted about social security to the World Bank and has written
about social security in Chile, China, France, Germany, Italy, the
Netherlands, Spain,
Sweden and the UK as well as the US.
"The book is a must-read for any student who wants to work in
public administrationsince pensions affect virtually every sector
of public policy, and increasingly so in developing countriesand
not only for pension experts. It is extremely well written and
clear, and it is an intellectual joy to separate the two voices in
this masterpiece of economic music: the first and fundamental voice
of scientific deduction, almost always intertwined with the second,
lower
key voice of a legitimate but not uncontroversial paternalistic
view of a largely benevolent government."--Economic Development and
Cultural Change
"Two of the finest minds in the economics profession lucidly
explain the theory and practice of pensions. They uncover the
various trade-offs in designing and reforming pension systems in an
imperfect world. While difficult, good reforms appear to be
possible. I wish that this book had been available when I became
interested in pensions. It would have saved me a lot of time and
energy."--Lans Bovenberg, Scientific Director, Netspar, Tilburg
University
"This is a wonderful book. Two very smart economists, steeped in
theory and exposure to real-life pension issues, lay out the
principles for good pension reform. They emphasize that pensions
have multiple purposes--consumption smoothing, poverty relief,
insurance, and redistribution, that we live in a 'second best'
world, and that, because countries vary significantly in their
stage of development, fiscal capacities, and administrative
capabilities, there is no
single best pension design. Yet using a host of international
examples, the authors demonstrate how sound economic principles
lead to good pension systems, and how analytical errors lead to
trouble.
This sophisticated yet highly readable volume should serve as a
road map for any country embarking on pension reform."--Alicia H.
Munnell, Director, Center for Retirement Research at Boston
College
"Nick Barr and Peter Diamond have each written some of the best
pieces on social insurance and pensions. Here they combine their
comparative advantages to offer us a path-breaking book on this
more-than-ever hot topic. This book brings together the analytics
of pensions with discussion of some country experiences. The
relevancy and wisdom of their view of reform can be summarized by
their statement that 'The answer lies less in the underlying
economic and
demographic realities than in the political difficulty of adapting
pension and health care systems to those realities.' This is the
message of realism that they convey throughout their
book."--Pierre
Pestieau, Professor of Economics, University of LIEGE
"Finally we have a nontechnical, widely accessible and insightful
book that brings together the analytics of pension reforms with a
discussion of some important country experience. The authors,
leading experts, use deep concepts of modern economic theory, such
as incentives, risk-sharing, and behavioral aspects of savings and
labor supply. All major topics and controversies are covered,
superbly explained, and succinctly summarized. This book will
become a
standard reference on the subject."--Eytan Sheshinski, Professor of
Economics, Hebrew University
"This is a splendid, comprehensive book that social policy
participants will want to read.... Highly recommended."--CHOICE
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