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A Framework for Assessing the Costs of Pension Reform Reversals

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  • Zsuzsa Munkacsi
  • Daniel Baksa
  • Carolin Nerlich

Abstract

Several European countries are currently considering reversing parts of their pension reforms that were adopted previously to improve sustainability. In this paper we present a framework that allows us to quantify the macroeconomic and fiscal costs of such reversals. We thereby integrate the country-specific information from the latest Ageing Report into a dynamic general equilibrium model with overlapping generations. Focusing on Germany and Slovakia as country cases, our model replicates the Ageing Report’s pension expenditure projections very well. We calculate the macroeconomic impact of first the additional pension reforms needed to contain the public debt pressures arising from population ageing and second the costs of reform reversals. Our model results show that undoing past pension reforms would generate substantial adverse macroeconomic costs and could pose challenges for fiscal sustainability.

Suggested Citation

  • Zsuzsa Munkacsi & Daniel Baksa & Carolin Nerlich, 2020. "A Framework for Assessing the Costs of Pension Reform Reversals," IMF Working Papers 2020/132, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2020/132
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    Cited by:

    1. Nerlich, Carolin, 2020. "How costly are pension reform reversals?," Research Bulletin, European Central Bank, vol. 68.
    2. Nerlich, Carolin, 2020. "How costly are pension reform reversals?," Research Bulletin, European Central Bank.

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    More about this item

    Keywords

    WP; benefit ratio; public debt-to-GDP ratio; old-age dependency ratio; contribution rate; labour force; public pension; reform reversals; population ageing; overlapping generations model; Ageing Report; adverse impact; Aging; Pension reform; Pension spending; Retirement; Europe;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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