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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. Copyright (c) The London School of Economics and Political Science 2006.

Suggested Citation

  • 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
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    References listed on IDEAS

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    Cited by:

    1. Christophe Hachon, 2008. "Redistribution, Pension Systems and Capital Accumulation," Financial Theory and Practice, Institute of Public Finance, vol. 32(3), pages 339-368.
    2. Donald A. R. George, 2013. "A two-sector growth model with institutional saving and investment," ESE Discussion Papers 214, Edinburgh School of Economics, University of Edinburgh.
    3. Christophe Hachon, 2008. "Redistribution, Pension Systems and Capital Accumulation," Working Papers halshs-00279167, HAL.
    4. 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.
    5. 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.
    6. Fanti, Luciano & Gori, Luca, 2009. "A two-sector OLG economy: economic growth and demographic behaviour," MPRA Paper 18869, University Library of Munich, Germany.

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