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

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  • Mario Catalan
  • Nicolas E Magud

Abstract

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.

Suggested Citation

  • Mario Catalan & Nicolas E Magud, 2012. "A Tradeoff between the Output and Current Account Effects of Pension Reform," IMF Working Papers 12/283, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/283
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    References listed on IDEAS

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    1. 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.
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    4. 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.
    5. Corden, W. Max, 1994. "Economic Policy, Exchange Rates, and the International System," OUP Catalogue, Oxford University Press, number 9780198774099.
    6. Guest, Ross S., 2006. "Population ageing, capital mobility and optimal saving," Journal of Policy Modeling, Elsevier, vol. 28(1), pages 89-102, January.
    7. Beetsma, Roel & Bettendorf, Leon & Broer, Peter, 2003. "The budgeting and economic consequences of ageing in the Netherlands," Economic Modelling, Elsevier, vol. 20(5), pages 987-1013, September.
    8. Attanasio, Orazio & Kitao, Sagiri & Violante, Giovanni L., 2007. "Global demographic trends and social security reform," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 144-198, January.
    9. 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.
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    Cited by:

    1. International Monetary Fund, 2013. "Mauritius; 2013 Article IV Consultation," IMF Staff Country Reports 13/97, International Monetary Fund.

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