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Working Paper No. 1488

Intergenerational Redistribution in a Pay-as-you-go Pension System

Working Paper
Lundberg, Jacob (2024). “Intergenerational Redistribution in a Pay-as-you-go Pension System”. IFN Working Paper No. 1488. Stockholm: Research Institute of Industrial Economics (IFN).

Jacob Lundberg

This study provides a comprehensive analysis of the generational wealth transfer within Sweden’s public pay-as-you-go pension system introduced in 1960. Using extensive administrative registers, the paper quantifies the contributions made and benefits received by each birth cohort. The findings reveal a substantial fiscal imbalance favouring the initial generation (born in the early 20th century), who received a net gain of $1.5 trillion in today’s present value, equivalent to up to 13% of their discounted lifetime income.

This windfall for the initial generation resulted in an implicit tax on current workers, accounting for 70% of their pension contributions. However, the study also highlights the effectiveness of Sweden’s 1999 notional defined-contribution pension reform in stabilizing this imbalance. Unlike many international counterparts, Sweden’s reformed system successfully mitigates further generational inequities in the pension system.