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Pension Reform in Taiwan: the Path to Long-Run Sustainability

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Abstract

This paper quantifies the fiscal costs of different pension reforms in Taiwan that achieve long-run sustainability. We build a general equilibrium life-cycle model with endogenous labor supply in both intensive and extensive margins, consumption, saving, and benefit claiming. Several options to make pensions sustainable under current demographic changes are presented; increase income tax by 5.4 percent, increase the consumption tax by 6.2 percent, increase the pension tax by 9 percent, or reduce the pension benefits by 23.5 percent. Furthermore, we evaluate the changes in macroeconomic indicators as well as labor market outcomes under different reforms. Last, we highlight the importance of the general equilibrium effects that can account for endogenously saving and labor supply, as partial equilibrium analysis usually underestimates negative effects.

Suggested Citation

  • Yu-Hsiang Cheng & Hsuan-Chih (Luke) Lin & Atsuko Tanaka, 2017. "Pension Reform in Taiwan: the Path to Long-Run Sustainability," IEAS Working Paper : academic research 17-A008, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    • Handle: RePEc:sin:wpaper:17-a008
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    Keywords

    Pension Reform; Long-Run Sustainability; Intensive and Extensive Margins JEL Classification: E2; E6; H5; J2;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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