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Preventing reforming unequally

Author

Listed:
  • Axel Börsch-Supan

    (Munich Center for the Economics of Aging at the Max Planck Institute for Social Law and Social Policy (MEA)
    National Bureau of Economic Research (NBER)
    Technical University of Munich (TUM))

  • Klaus Härtl

    (Munich Center for the Economics of Aging at the Max Planck Institute for Social Law and Social Policy (MEA))

  • Duarte N. Leite

    (Munich Center for the Economics of Aging at the Max Planck Institute for Social Law and Social Policy (MEA)
    Center for Economics and Finance at the University of Porto (CEF.UP))

  • Alexander Ludwig

    (Goethe University Frankfurt)

Abstract

Population aging has forced policy makers in most developed countries to reform pension systems with the aim of maintaining or re-establishing financial sustainability. This usually involves cost-cutting measures like later pension eligibility ages and lower replacement rates. Such reforms face harsh trade-offs with the objective of providing adequate pensions. Social welfare and inequality have emerged as crucial concerns about recent pension reforms, stressing that the lack of “social sustainability” may undermine financial sustainability. This paper analyzes such trade-offs and may explain why support for pension reform has dwindled in Europe. The paper evaluates reform effects on financial sustainability, social welfare, and intra- and inter-generational equality in a rich unified framework with several dimensions of heterogeneity and various behavioral reactions. Our simulations shed light on the complex distributional effects of pension reform on different cohorts and societal groups. They show where policy tends to reform unequally and why reforms may fail to find voters’ approval.

Suggested Citation

  • Axel Börsch-Supan & Klaus Härtl & Duarte N. Leite & Alexander Ludwig, 2023. "Preventing reforming unequally," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(4), pages 2889-2924, October.
    • Handle: RePEc:spr:jopoec:v:36:y:2023:i:4:d:10.1007_s00148-023-00976-8
    DOI: 10.1007/s00148-023-00976-8
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    Keywords

    Population aging; Pension reform; Inequality; Life cycle behavior; Labor supply; Welfare;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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