Postprint version. Published in FinanzArchiv: Public Finance Analysis, Volume 59, Issue 3, September 1, 2003, pages 371-386. Copyright © 2003 Mohr Siebeck. The definitive version is available at http://dx.doi.org/10.1628/0015221032973636.
NOTE: At the time of publication, the author Eric Fisher was not yet affiliated with Cal Poly.
This paper analyses a model of overlapping generations in which agents who do not participate in the labor market are unable to borrow. Thus an increase in a fully funded pension raises aggregate savings even with a fixed participation rate since private savings are not crowded out one-for-one. When labor force participation is determined endogenously, a rise in the level of fully funded pensions increases the aggregate labor supply. This in turn increases aggregate savings and growth, directly by raising per capita savings and indirectly through tax and interest rate effects.