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

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

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.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 74 (2007)
Issue (Month): 296 (November)
Pages: 736-755

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Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:736-755
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