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Pension reform, employment by age, and long-run growth in OECD countries

  • Renaat Van de Kerckhove

    (Ghent University)

  • Freddy Heylen

    (Ghent University)

  • Tim Buyse

    (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 all 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 Society for Economic Dynamics in its series 2011 Meeting Papers with number 736.

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Date of creation: 2011
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Handle: RePEc:red:sed011:736
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