An Economic Analysis of Fully Funded Pension Program

This paper uses an overlapping generation model to examine how individual choices and welfare are affected with the implementation of a fully funded pension plan. First, I consider the case when the pension is not available and sets this result as a benchmark. I then examine how a uniform pension benefit financed with a flat income tax affects individual behaviour across households that differ in their skill and their preference for leisure. The computational results show that the pension program leads to a distortion in labour supply and generally reduces the level of welfare for all types of individuals.