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Ageing and Fiscal Imbalances Across Generations: Concepts of Measurement

  • Robert Fenge
  • Martin Werding

In the literature, several approaches have been taken to measure the impact of demographic ageing on public pension schemes, with particular attention being paid to potential fiscal imbalances across the generations involved in demographic transition. In this paper, we review three of these measures - viz., “net pension liabilities” and “general government fiscal balances” as suggested by the OECD, as well as “generational accounting” in the Auerbach- Kotlikoff tradition. We show how these approaches are related to each other by the general idea that unfunded pensions create an implicit public debt, and we discuss the problems involved in applying and interpreting them in a real-world context. In addition, we suggest the “implicit tax” entailed in public pensions as a further concept for measuring the inter-generational distribution of burdens arising in ageing populations. The notion of an implicit tax is straightforward from simple pension algebra; it is easy to interpret in a theoretical perspective; and it can be introduced to various kinds of applied work using micro-level data.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 842.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_842
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  1. Kotlikoff, L.J. & Raffelhuschen, B., 1999. "Generational Accounting around the Globe," Norway; Department of Economics, University of Bergen 195, Department of Economics, University of Bergen.
  2. Laurence J. Kotlikoff & Willi Leibfritz, 1998. "An International Comparison of Generational Accounts," NBER Working Papers 6447, National Bureau of Economic Research, Inc.
  3. Sinn, Hans-Werner, 1997. "The Value of Children and Immigrants in a Pay-As-You-Go Pension System: A Proposal For a Partial Transition to a Funded System," CEPR Discussion Papers 1734, C.E.P.R. Discussion Papers.
  4. N. A. Barr, 2000. "Reforming Pensions: Myths, Truths, and Policy Choices," IMF Working Papers 00/139, International Monetary Fund.
  5. Hans Fehr & Laurence J. Kotlikoff, 1995. "Generational Accounting in General Equilibrium," NBER Working Papers 5090, National Bureau of Economic Research, Inc.
  6. Hans-Werner Sinn & Martin Werding, 2000. "Rentenniveausenkung und Teilkapitaldeckung - ifo Empfehlungen zur Konsolidierung des Umlageverfahrens," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 53(18), pages 12-25, 06.
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  8. Jonathan Gruber & David Wise, 1997. "Social Security Programs and Retirement Around the World: Introduction and Summary of Papers by..," NBER Working Papers 6134, National Bureau of Economic Research, Inc.
  9. Robert Holzmann & Robert Palacios & Asta Zviniene, 2001. "On the Economics and Scope of Implicit Pension Debt: An International Perspective," Empirica, Springer, vol. 28(1), pages 97-129, March.
  10. Martin Werding & Harald Blau, 2002. "Auswirkungen des demographischen Wandels auf die staatlichen Alterssicherungssysteme : Modellrechnungen bis 2050," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, number 8, May.
  11. Willi Leibfritz & Deborah Roseveare & Douglas Fore & Eckhard Wurzel, 1995. "Ageing Populations, Pension Systems and Government Budgets: How Do They Affect Saving?," OECD Economics Department Working Papers 156, OECD Publishing.
  12. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 55-110 National Bureau of Economic Research, Inc.
  13. Robin Brooks, 2000. "What Will Happen to Financial Markets When the Baby Boomers Retire?," IMF Working Papers 00/18, International Monetary Fund.
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  15. Homburg, Stefan & Richter, Wolfram, 1990. "Eine effizienzorientierte Reform der GRV," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 183-191..
  16. Robert Haveman, 1994. "Should Generational Accounts Replace Public Budgets and Deficits?," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 95-111, Winter.
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