Increasing PAYG pension benefits and reducing contribution rates

We analyse how a reduced contribution rate affects the balanced pay-as-you-go pension budget in the basic overlapping generations model of neoclassical growth (Diamond, P., 1965. National debt in a neoclassical growth model. American Economic Review 55 (5), 1126-1150). It is shown that PAYG pensions can be increased by reducing the payroll tax paid by the young contributors.