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Population ageing and public pension reforms in a small open economy

Author

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  • Nickel, Christiane
  • Rother, Philipp
  • Theophilopoulou, Angeliki

Abstract

This paper aims to address the issue of public pension reforms under demographic ageing that is likely to occur in Europe over the next 50 years. Three possible scenarios are analysed in a Blanchard OLG framework. These include: i) a decrease both in public pensions and the lump sum labour income tax, ii) a decrease both in public pensions and the distortionary corporate tax, iii) an increase in the retirement age. The analysis focuses on the effects of these fiscal policies on key economic variables such as consumption, private and public debt, output and wages. Quantitative experiments assess the impact of different fiscal policies in terms of public debt sustainability but most importantly suggest policies that smooth the transition of the economy to the new equilibrium. The main results suggest that the adverse effects of pension reforms on consumption are moderated when they are accompanied by appropriate taxation policies. In particular, when the tax response is rapid most of the adverse movement in consumption is avoided while public and national debt reach lower equilibrium levels. JEL Classification: E6, H3, J1, H55

Suggested Citation

  • Nickel, Christiane & Rother, Philipp & Theophilopoulou, Angeliki, 2008. "Population ageing and public pension reforms in a small open economy," Working Paper Series 863, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2008863
    Note: 166869
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp863.pdf
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    References listed on IDEAS

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    Cited by:

    1. Fernando Arias-Rodríguez & Julián A. Parra-Polanía, 2021. "Pensiones y reforma pensional: efectos macroeconómicos del envejecimiento en Colombia," Borradores de Economia 1173, Banco de la Republica de Colombia.
    2. Kinnunen, Helvi, 2008. "Government funds and demographic transition: alleviating ageing costs in a small open economy," Bank of Finland Research Discussion Papers 21/2008, Bank of Finland.
    3. Andreas Bachmann & Kaspar W thrich, 2013. "Evaluating pay-as-you-go social security systems," Diskussionsschriften dp1310, Universitaet Bern, Departement Volkswirtschaft.
    4. Daniel Baksa & Zsuzsa Munkacsi, 2016. "A Detailed Description of OGRE, the OLG Model," Bank of Lithuania Working Paper Series 31, Bank of Lithuania.
    5. Masakazu Someya & Keiichiro Oizumi & Kazuhiko Oyamada & Ken Itakura, 2012. "Population Aging in the Interdependent Global Economy: A Computational Approach with a Prototype Overlapping Generations Model of Global Trade," EcoMod2012 3925, EcoMod.
    6. repec:zbw:bofrdp:2008_021 is not listed on IDEAS
    7. Kinnunen, Helvi, 2008. "Government funds and demographic transition : alleviating ageing costs in a small open economy," Research Discussion Papers 21/2008, Bank of Finland.

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    More about this item

    Keywords

    ageing; overlapping generations; Pension Reforms; taxation;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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