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Inter- and Intra-generational Consequences of Pension Buffer Policy under Demographic, Financial, and Economic Shocks

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  • Alessandro Bucciol
  • Roel M.W.J. Beetsma

Abstract

We study the inter- and intra-generational welfare consequences of alternative pension fund policies in response to unexpected demographic, financial, and macro-economic shocks. Our analysis is based on an applied OLG model of a small open economy with heterogeneous agents featuring a two-pillar pension system modelled after that in the Netherlands (with pay-as-you-go (PAYG) and funded tiers). We explore two policies to avoid underfunding of the pension funds. One emphasizes increases in the contribution rate, while the other emphasizes the reduction of indexation of pensions to price inflation and productivity growth. Our stochastic simulations show that the welfare differences between the two types of policy are generally small. They also show that the pension buffers are highly volatile when the shocks are drawn from realistically modelled multivariate shock processes. Underfunding occurs relatively frequently and in any case substantially more than anticipated by the Dutch supervisor. (JEL codes: H55, I38, C61) Copyright The Author 2010. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by CESifo in its journal CESifo Economic Studies.

Volume (Year): 56 (2010)
Issue (Month): 3 (September)
Pages: 366-403

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Handle: RePEc:oup:cesifo:v:56:y:2010:i:3:p:366-403

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Cited by:
  1. Roel M. W. J. Beetsma & Alessandro Bucciol, 2010. "Differentiating Indexation in Dutch Pension Funds," CESifo Working Paper Series 3305, CESifo Group Munich.
  2. Roel Beetsma & Alessandro Bucciol, 2010. "Differentiating Indexation in Dutch Pension Funds," Tinbergen Institute Discussion Papers 10-128/2, Tinbergen Institute.
  3. Laura Cavalli & Alessandro Bucciol & Paolo Pertile & Veronica Polin & Nicola Sartor & Alessandro Sommacal, 2012. "Modelling life-course decisions for the analysis of interpersonal and intrapersonal redistribution," Working Papers 25/2012, University of Verona, Department of Economics.

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