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Small assumptions (can) have a large bearing: evaluating pension system reforms with OLG models

Author

Listed:
  • Marcin Bielecki

    (Faculty of Economic Sciences, University of Warsaw)

  • Karolina Goraus

    (Faculty of Economic Sciences, University of Warsaw)

  • Jan Hagemejer

    (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)

  • Krzysztof Makraski

    (Warsaw School of Economics; National Bank of Poland)

  • Joanna Tyrowicz

    (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)

Abstract

The objective of this paper is to inquire the consequences of some simplifying assumptions typically made in the overlapping generations (OLG) models of pension systems and pension system reforms. This literature is largely driven by policy motivations. Consequently, the majority of the papers is extremely detailed in the dimension under scrutiny. On the other hand, complexity of general equilibrium OLG modeling necessitates some simplifications in the model. We run a series of experiments in which the same reform in the same economy is modeled with six different sets of assumptions concerning the shape of the utility function, time inconsistency, bequests’ redistribution, labor supply decisions and internalizing the linkage between social security contributions and benefits in these decisions as well as public spending. We find that these assumptions significantly affect both the size and the sign of the macroeconomic and welfare measures of policy effects with the order of magnitude comparable to the reform itself.

Suggested Citation

  • Marcin Bielecki & Karolina Goraus & Jan Hagemejer & Krzysztof Makraski & Joanna Tyrowicz, 2014. "Small assumptions (can) have a large bearing: evaluating pension system reforms with OLG models," Working Papers 2014-20, Faculty of Economic Sciences, University of Warsaw.
  • Handle: RePEc:war:wpaper:2014-20
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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP137.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tran, Chung, 2016. "Fiscal policy as a temptation control device: Savings subsidy and social security," Economic Modelling, Elsevier, vol. 55(C), pages 254-268.
    2. Joanna Tyrowicz & Krzysztof Makarski & Marcin Bielecki, 2018. "Inequality in an OLG economy with heterogeneous cohorts and pension systems," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 16(4), pages 583-606, December.
    3. Davide Bazzana, 0. "Ageing population and pension system sustainability: reforms and redistributive implications," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 0, pages 1-22.
    4. Bielecki, Marcin & Goraus, Karolina & Hagemejer, Jan & Tyrowicz, Joanna, 2016. "Decreasing fertility vs increasing longevity: Raising the retirement age in the context of ageing processes," Economic Modelling, Elsevier, vol. 52(PA), pages 125-143.
    5. Zhou, Rui & Li, Johnny Siu-Hang & Tan, Ken Seng, 2015. "Modeling longevity risk transfers as Nash bargaining problems: Methodology and insights," Economic Modelling, Elsevier, vol. 51(C), pages 460-472.
    6. Davide Bazzana, 2020. "Ageing population and pension system sustainability: reforms and redistributive implications," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 971-992, October.
    7. Artur Rutkowski, 2019. "Evaluating an old-age voluntary saving scheme under incomplete rationality," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 55-94.

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    More about this item

    Keywords

    pension system reform; overlapping generations (OLG); defined benefit; defined contribution;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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