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Pension reform, employment by age and long-run growth

  • Tim BUYSE

    ()

    (SHERPPA, Ghent University)

  • Freddy HEYLEN

    ()

    (SHERPPA, Ghent University and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Renaat VAN DE KERCKHOVE

    (SHERPPA, Ghent University)

We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate per capita growth, are endogenous. Next to the characteristics of the pension system, our model assigns an important role to the composition of fiscal policy. We find that the model explains the facts remarkably well for many OECD countries. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and welfare, positive effects in a PAYG system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2011025.

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Length: 38
Date of creation: 30 Jun 2011
Date of revision:
Handle: RePEc:ctl:louvir:2011025
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