The long-term impact of quasi-universal transfers to older households

One of the key challenges associated with current demographic trends is to provide adequate financial support to older households without jeopardizing fiscal sustainability or harming macroeconomic performance. Among possible policies, quasi-universal transfers have recently gained traction in several countries. One example of this approach is the 13th Pension, introduced in 2019 in Poland. In this paper, I study the long-term aggregate, redistributive, and welfare effects of this type of program, and compare its impact to that of more standard elderly-oriented policies with similar fiscal costs. I also investigate how simple modifications would affect its costs and effectiveness. My analysis is based on a general equilibrium overlapping generations model of an open economy that incorporates family types, individual risk associated with earnings, health and mortality, and stochastic out-of-pocket expenses. According to the model simulations, a quasi-universal transfer to retired households such as the Polish 13th Pension program significantly improves the financial situation of a median pensioner but generates an aggregate welfare loss (under the veil of ignorance) equivalent to a 0.7% reduction in average household lifetime consumption. It also has only a moderate impact on average measures of poverty and inequality.