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Pension Systems (Un)sustainability and Fiscal Constraints: A Comparative Analysis

Author

Listed:
  • Burkhard Heer

    (Department of Economics, University of Ausburg, CESifo, Netspar)

  • Vito Polito

    (Department of Economics, University of Sheffield, CESifo, Netspar)

  • Mike Wickens

    (Department of Economics, University of York, CESifo, CEPR, Netspar, Cardiff University)

Abstract

Using an overlapping generations model, two new indicators of public pension system sustainability are proposed: the pension space, which measures the capacity to pay for pension expenditures out of labour taxation, and the pension space exhaustion probability reflecting demographic uncertainties. These measures reveal that the pension spaces of advanced economies are strikingly different. Most nations have little scope to further finance pensions out of labour income taxation over the next thirty years. There is no one-size-fits-all solution. Risk-equivalent pension reforms enhance welfare in the long run, particularly for rapidly ageing nations, but also entail non-negligible transitional costs.

Suggested Citation

  • Burkhard Heer & Vito Polito & Mike Wickens, 2023. "Pension Systems (Un)sustainability and Fiscal Constraints: A Comparative Analysis," Working Papers 2023014, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2023014
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    File URL: https://www.sheffield.ac.uk/economics/research/serps
    File Function: First version, June 13 2023
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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