Pareto improving transition from a pay-as-you-go to a fully funded pension system in a model of endogenous growth

In this paper we investigate the possibility of Pareto improving social security reforms within a framework of endogenous growth. Belan et al. (1998) propose a transition from a pay-as-you-go (PAYG) pension system to a system of savings–subsidization. We follow this approach and prove that a Pareto improving conversion from the PAYG system to a fully funded one is possible. Finally, we compare the subsidy system with the fully funded system and discuss the problem of implementing the transition to the fully funded system. Received: 07 March 1999/Accepted: 13 December 1999