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Pension reform, employment by age, and long-run growth in OECD countries

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  • T. BUYSE

    ()

  • F. HEYLEN

    ()

  • R. VAN DE KERCKHOVE

    ()

Abstract

We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate per capita growth, are all endogenous. Next to the characteristics of the pension system, our model assigns an important role to the composition of fiscal policy. We find that the model explains the facts remarkably well for many OECD countries. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and welfare, positive effects in a PAYG system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base.

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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 11/719.

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Length: 39 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:rug:rugwps:11/719

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Cited by:
  1. Edgar Vogel & Alexander Ludwig & Axel Börsch-Supan, 2013. "Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation," Working Paper Series in Economics 59, University of Cologne, Department of Economics.
  2. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
  3. Heylen Freddy & Van de Kerckhove Renaat, 2013. "Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 55, October.
  4. T. Buyse & F. Heylen & R. Van De Kerckhove, 2012. "Pension reform in an OLG model with heterogeneous abilities," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/810, Ghent University, Faculty of Economics and Business Administration.

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