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Government funds and demographic transition – alleviating ageing costs in a small open economy

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Author Info
Kinnunen, Helvi () (Bank of Finland Research)
Abstract

This paper investigates public pension funding using a dynamic general equilibrium macroeconomic model (DSGE) that facilitates investigation of distortionary effects of fiscal and pension policy responses to ageing. The model is calibrated to the Finnish economy, which will encounter substantial ageing pressures in the near future. During the transition to an older population structure ageing costs can be substantially lowered by allowing public funds to smooth out the tax responses. Cutting down on pension prefunding at a time when the pace of ageing is at its peak reduces the necessary tax hikes and stimulates labour supply growth at the moment when the labour market is tightest. With smaller funding needs, ageing leads to a slower growth in labour costs, a better employment conditions and faster production growth.

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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 21/2008.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 39 pages
Date of creation: 23 Sep 2008
Date of revision:
Handle: RePEc:hhs:bofrdp:2008_021

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: ageing; general equilibrium; public finance; government funds;

Other versions of this item:

Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
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    Other versions:
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