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A Tradeoff between the Output and Current Account Effects of Pension Reform

  • Mario Catalan
  • Nicolas E. Magud
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    We compare the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets. We show the presence of a policy trade-off. Pension reforms that increase the retirement age have a large positive effect on output, but a small (and often negative) effect on the current account. In contrast, reforms that cut pension benefits improve the current account balance but reduce output. Mixed pension reforms, which extend the working life and cut pension benefits, can simultaneously boost output and the current account.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/283.

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    Length: 24
    Date of creation: 03 Dec 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/283
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    1. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Working Paper Series 580, Research Institute of Industrial Economics.
    2. Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
    3. Attanasio Orazio P. & Gianluca Violante, 1999. "Global Demographic Trends and Social Security Reform," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
    4. Guest, Ross S., 2006. "Population ageing, capital mobility and optimal saving," Journal of Policy Modeling, Elsevier, vol. 28(1), pages 89-102, January.
    5. Fehr, Hans & Jokisch, Sabine & Kotlikoff, Laurence J., 2008. "Fertility, mortality and the developed world's demographic transition," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 455-473.
    6. Börsch-Supan, Axel & Ludwig, Alexander & Winter, Joachim, 2004. "Aging, Pension Reform, and Capital Flows:," Sonderforschungsbereich 504 Publications 04-65, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    7. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers 1762, C.E.P.R. Discussion Papers.
    8. Corden, W. Max, 1994. "Economic Policy, Exchange Rates, and the International System," OUP Catalogue, Oxford University Press, number 9780198774099, March.
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