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Coping with Spain's Aging

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Author Info

  • Alexander W. Hoffmaister
  • Mario Catalán
  • Jaime Guajardo

Abstract

This paper evaluates the macroeconomic and welfare effects of extending the averaging period used to calculate pension benefits in a pay-as-you-go system. It also examines the complementarities between reforms extending the averaging period and those increasing the retirement age under alternative tax policies. The analysis is based on a model in the Auerbach-Kotlikoff tradition applied to the Spanish economy. Without reforms, the simulations suggest that aging-related spending as a share of output will increase 16 percentage points by 2050, which are twice as much as in European Commission (2006) projections due to general equilibrium effects. Also, reforms extending the averaging period to the entire work life limit expenditure pressures at the peak of the demographic shock as much as increasing the retirement age in line with life expectancy (4 percentage points of GDP). These reforms and prefunding the demographic shock mitigate the adverse macroeconomic effects of aging and improve welfare.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/122.

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Length: 51
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/122

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Related research

Keywords: Pension regulations; Aging; Economic models; pension; retirement; retirement age; tax rate; benefits; pension reform; wage; labor force; pension benefits; tax rates; pension expenditure; pension reforms; life expectancy; dependency ratio; pension benefit; wage rates; average pension; pension system; individual pension; payroll; pension expenditures; wages; retirement period; wage rate; pensions; old-age pension; labor income; pensioners; pension income; net return; net wage; payroll tax; payroll taxes; inflation indexation; labor input; retirement periods; retirement accounts; long-term care; future pension; mandatory retirement; individual pensions; individual retirement accounts; health care; gross wage; pension contributions; individual retirement; pay-as-you-go system; life expectancies; pension literature; pension at retirement; pension system reform; pension systems; old-age pension system; lower pension; funded schemes; labor force participation; public pension; old-age pensions; national accounts; wage growth; nominal wage; pension accounts; public pension system;

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References

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  1. de Cordoba, Gonzalo Fernandez & Kehoe, Timothy J., 2000. "Capital flows and real exchange rate fluctuations following Spain's entry into the European Community," Journal of International Economics, Elsevier, vol. 51(1), pages 49-78, June.
  2. Jimeno, Juan F. & Rojas, Juan A. & Puente, Sergio, 2008. "Modelling the impact of aging on social security expenditures," Economic Modelling, Elsevier, vol. 25(2), pages 201-224, March.
  3. Laurence J. Kotlikoff, 1998. "The A-K Model: It's Past, Present, and Future," NBER Working Papers 6684, National Bureau of Economic Research, Inc.
  4. Assar Lindbeck & Mats Persson, 2003. "The Gains from Pension Reform," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 74-112, March.
  5. Alan S. Blinder & Roger H. Gordon & Donald E. Wise, 1981. "Reconsidering the Work Disincentive Effects of Social Security," NBER Working Papers 0562, National Bureau of Economic Research, Inc.
  6. Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
  7. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  8. Ángel Estrada & José Luis Fernández & Esther Moral & Ana V. Regil, 2004. "A quarterly macroeconometric model of the Spanish Economy," Banco de Espa�a Working Papers 0413, Banco de Espa�a.
  9. Alfonso R. Sánchez Martín, 2001. "Endogenous Retirement And Public Pension System Reform In Spain," Economics Working Papers we013503, Universidad Carlos III, Departamento de Economía.
  10. Juan A. Rojas, . "Life-cycle Earnings Cohort Size Effects and Social Security. A Quantitative Exploration," Studies on the Spanish Economy 88, FEDEA.
  11. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 1999. "Privatizing Social Security in the U.S. -- Comparing the Options," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 532-574, July.
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Citations

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Cited by:
  1. Jan Babecky & Kamil Dybczak, 2009. "The Impact of Population Ageing on the Czech Economy," Working Papers 2009/1, Czech National Bank, Research Department.

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