The Norwegian pension reform of 2006 intends to (1) improve long run fiscal sustainability by reducing the growth in public old-age expenditures, (2) strengthen labour supply incentives, and (3) maintain the main redistributive features of the present system. We assess to what extent the reform is likely to achieve these three goals, using two empirical models iteratively: We combine a detailed dynamic micro simulation of individual benefits and government pension expenditures with a CGE-model, which captures behavioural effects and equilibrium repercussions. We find that the pension reform improves fiscal balances substantially. Compared to a no-reform scenario, the payroll tax rate can be cut by 10 percentage points in 2050. Increased employment contributes more to the fiscal improvement than the reduction in pension expenditures. However, these changes are basically level effects; the reform has a surprisingly small effect on the growth rate of the necessary tax burden starting in 2020. In particular, the growth rate of public pension expenditures is hardly affected. Stronger government finances and higher employment is obtained at the expense of a significant increase income inequality among old age pensioners.
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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number
557.
Find related papers by JEL classification: H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
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Lindbeck, Assar & Persson, Mats, 2002.
"The Gains from Pension Reform,"
Seminar Papers
712, Stockholm University, Institute for International Economic Studies.
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