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Increased Pension Savings: Blessing or Curse? Social Security Reform in a Two‐Sector Growth Model

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  • BAS VAN GROEZEN
  • LEX MEIJDAM
  • HARRIE A. A. VERBON

Abstract

This paper analyses the consequences of a switch to a more funded pension scheme for economic growth in an economy that consists of a capital‐intensive commodity sector with endogenous growth and a labour‐intensive services sector. The increased savings cause long‐run growth to be higher in a closed economy, provided capital and labour are not strong substitutes. The reverse holds for a small open economy. More funding can therefore turn out to be a curse instead of a blessing for future generations, unless countries implement their reforms simultaneously or impose a tax on labour‐intensive services.

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  • Bas Van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2007. "Increased Pension Savings: Blessing or Curse? Social Security Reform in a Two‐Sector Growth Model," Economica, London School of Economics and Political Science, vol. 74(296), pages 736-755, November.
    • Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:736-755
    DOI: 10.1111/j.1468-0335.2006.00557.x
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    Cited by:

    1. Donald George, 2017. "A Pasinetti model of savings and growth," Edinburgh School of Economics Discussion Paper Series 278, Edinburgh School of Economics, University of Edinburgh.
    2. Christophe Hachon, 2008. "Redistribution, Pension Systems and Capital Accumulation," Financial Theory and Practice, Institute of Public Finance, vol. 32(3), pages 339-368.
    3. Emin Gahramanov & Xueli Tang, 2013. "Should We Refinance Unfunded Social Security?," Economica, London School of Economics and Political Science, vol. 80(319), pages 532-565, July.
    4. Christophe Hachon, 2010. "Do Beveridgian pension systems increase growth?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 825-831, March.
    5. Fanti, Luciano & Gori, Luca, 2009. "A two-sector OLG economy: economic growth and demographic behaviour," MPRA Paper 18869, University Library of Munich, Germany.
    6. Luciano Fanti & Luca Gori, 2010. "A two-sector overlapping generations economy: economic growth and multiple equilibria," Discussion Papers 2010/100, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    7. Donald A. R. George, 2013. "A two-sector growth model with institutional saving and investment," Edinburgh School of Economics Discussion Paper Series 214, Edinburgh School of Economics, University of Edinburgh.
    8. Christophe Hachon, 2008. "Redistribution, Pension Systems and Capital Accumulation," Working Papers halshs-00279167, HAL.
    9. Nakabayashi, Masaki, 2019. "From family security to the welfare state: Path dependency of social security on the difference in legal origins," Economic Modelling, Elsevier, vol. 82(C), pages 280-293.
    10. George, Donald A R, 2012. "A two-sector growth model with institutional saving and investment," SIRE Discussion Papers 2012-28, Scottish Institute for Research in Economics (SIRE).

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