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Aging and the Financing of Social Security in Switzerland

Listed author(s):
  • Christian Keuschnigg

    ()

  • Mirela Keuschnigg

    ()

  • Christian Jaag

This paper studies the quantitative impact of aging on the financing of social security and the public sector in Switzerland. Demographic projections forecast a doubling of the dependency ratio until 2050 as well as an increase of 10% in total population due to longer life expectancy. We use a computational growth model with overlapping generations, including labor market adjustment on five different behavioural margins: labor market participation, hours worked, job search, retirement, and on-the-job training. Starting with a passive fiscal strategy, our simulations show that a doubling of the old age dependency ratio might reduce per capita income by more than 20 percent and necessitate a long-run increase of wage taxes and social security contributions by 21 percentage points. A comprehensive reform package, including an increase in the effective retirement age to 68 years and several other measures, may limit the increase of the tax burden to 4 percentage points of the value added tax and reduce the decline of per capita income to 6% in the long-run. firms typically have a high growth potential, need external funds to finance investment, and rely on the key effort and know-how of inside entrepreneurs. Given the limited amount of tangible assets and the non-contractible nature of entrepreneurial effort, these firms are often financially constrained. Access to external funds becomes an important factor in the expansion of innovative industries. This paper models a two sector economy of innovative and standard industries and shows how the pattern of comparative advantage is shaped by factor endowments and variables relating to corporate finance. In particular, a larger equity ratio of young entrepreneurial firms and tough corporate governance standards relax the financing constraints and create a comparative advantage in innovative industries.

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File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2009/DP-0926-Ke.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2009 with number 2009-26.

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Length: 35 pages
Date of creation: Sep 2009
Handle: RePEc:usg:dp2009:2009-26
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