PRESERVING TRANSFER BENEFIT FOR PRESENT AND FUTURE GENERATIONS

How should governmental policy be adjusted to guarantee a positive account for each generation, taking into account welfare and equity across age classes? Such a contract depends on the dynamic maintenance of a positive account for every present and future generation and can be achieved by manipulating both pension and education spending. The ensuing dynamic tradeoff between generational benefit and equity implies an optimal interest rate in human capital and attenuates the link that long-term pension sustainability necessarily depends on positive population growth.