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Inter- and Intra-generational Consequences of Pension Buffer Policy under Demographic, Financial, and Economic Shocks

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  • Alessandro Bucciol
  • Roel M.W.J. Beetsma

Abstract

We study the inter- and intra-generational welfare consequences of alternative pension fund policies in response to unexpected demographic, financial, and macro-economic shocks. Our analysis is based on an applied OLG model of a small open economy with heterogeneous agents featuring a two-pillar pension system modelled after that in the Netherlands (with pay-as-you-go (PAYG) and funded tiers). We explore two policies to avoid underfunding of the pension funds. One emphasizes increases in the contribution rate, while the other emphasizes the reduction of indexation of pensions to price inflation and productivity growth. Our stochastic simulations show that the welfare differences between the two types of policy are generally small. They also show that the pension buffers are highly volatile when the shocks are drawn from realistically modelled multivariate shock processes. Underfunding occurs relatively frequently and in any case substantially more than anticipated by the Dutch supervisor. (JEL codes: H55, I38, C61) Copyright The Author 2010. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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  • Alessandro Bucciol & Roel M.W.J. Beetsma, 2010. "Inter- and Intra-generational Consequences of Pension Buffer Policy under Demographic, Financial, and Economic Shocks," CESifo Economic Studies, CESifo, vol. 56(3), pages 366-403, September.
  • Handle: RePEc:oup:cesifo:v:56:y:2010:i:3:p:366-403
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    Citations

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    Cited by:

    1. Leo de Haan, 2015. "Recovery measures of underfunded pension funds: higher contributions, no indexation, or pension cuts?," DNB Working Papers 485, Netherlands Central Bank, Research Department.
    2. Laura Cavalli & Alessandro Bucciol & Paolo Pertile & Veronica Polin & Nicola Sartor & Alessandro Sommacal, 2012. "Modelling life-course decisions for the analysis of interpersonal and intrapersonal redistribution," Working Papers 25/2012, University of Verona, Department of Economics.
    3. Roel Beetsma & Alessandro Bucciol, 2011. "Differentiating Indexation in Dutch Pension Funds," De Economist, Springer, pages 323-360.
    4. Ed Westerhout & Jan Bonenkamp & Peter Broer, 2014. "Collective versus Individual Pension Schemes: a Welfare-Theoretical Perspective," CPB Discussion Paper 287, CPB Netherlands Bureau for Economic Policy Analysis.
    5. van Ewijk, Reyn, 2011. "Same work, lower grade? Student ethnicity and teachers' subjective assessments," Economics of Education Review, Elsevier, pages 1045-1058.
    6. repec:sgh:gosnar:y:2017:i:4:p:63-81 is not listed on IDEAS
    7. Roel Beetsma & Alessandro Bucciol, 2011. "Differentiating Indexation in Dutch Pension Funds," De Economist, Springer, pages 323-360.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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