A worker's backpack as an alternative to Payg Pension Systems

Julián Díaz-Saavedra, Ramon Marimon, João Brogueira de Sousa

Research output: Contribution to journalArticlepeer-review


Facing an ageing population and historical trends of low employment rates, pay-as-you-go (PAYG) pension systems, currently in place in several European countries, imply very large economic and welfare costs in the coming decades. In an overlapping generations economy with incomplete insurance markets and frictional labour markets, an employment fund, which can be used while unemployed or retired, can enhance production efficiency and social welfare. With an appropriate design, the sustainable Backpack employment fund (BP) can greatly outperform (measured by average social welfare in the economy) existing PAYG systems and also Pareto dominate a full privatization of the pension system, as well as a standard fully funded defined contribution pension system. We show this in a calibrated model of the Spanish economy, by comparing the effect of its ageing transition under these different pension systems and by showing how a front-loaded transition from the PAYG to the BP system can be Pareto improving, while minimizing the cost of the reform.
Original languageEnglish
Article numberjvad021
Pages (from-to)1944-1993
Number of pages50
JournalJournal Of The European Economic Association
Issue number5
Early online date3 Apr 2023
Publication statusPublished - Oct 2023


Dive into the research topics of 'A worker's backpack as an alternative to Payg Pension Systems'. Together they form a unique fingerprint.

Cite this