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Aging Population and Public Pensions: Theory and Macroeconometric Evidence

  • Miroslav Verbič


    (Faculty of Economics, University of Ljubljana; Institute for Economic Research, Slovenia)

  • Rok Spruk


    (Department of Economic and Social History, Utrecht University, The Netherlands)

Rapidly aging population in high-income countries has exerted additional pressure on the sustainability of public pension expenditure. We present a theoretical model of public pension expenditure under endogenous human capital, where the latter facilitates a substantial decrease in equilibrium fertility rate alongside the improvement in life expectancy. We demonstrate how higher life expectancy and human capital endowment facilitate a rise of net replacement rate. We then provide and examine an empirical model of old-age expenditure in a panel of 33 countries for the period 1998-2008. Our results indicate that increases in effective retirement age and total fertility rate would reduce age-related expenditure substantially. While higher net replacement rate would alleviate the risk of old-age poverty, further increases would add considerable pressure on the fiscal sustainability of public pensions.

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Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 61 (2014)
Issue (Month): 3 (June)
Pages: 289-316

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Handle: RePEc:voj:journl:v:61:y:2014:i:3:p:289-316
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