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Aging, Pension Reform, and Capital Flows:

Author

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  • Börsch-Supan, Axel

    () (Sonderforschungsbereich 504)

  • Ludwig, Alexander

    () (Mannheim Research Institute for the Economics of Aging (MEA) and Sonderforschungsbereich 504)

  • Winter, Joachim

    () (Mannheim Research Institute for the Economics of Aging (MEA))

Abstract

We present a quantitative analysis of the effects of population aging and pension reform on international capital markets. First, demographic change alters the time path of aggregate savings within each country. Second, this process may be amplified when a pension reform shifts old-age provision towards more pre-funding. Third, while the patterns of population aging are similar in most countries, timing and initial conditions differ substantially. Hence, to the extent that capital is internationally mobile, population aging will induce capital flows between countries. All three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from fast-aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility.25 August, 2004

Suggested Citation

  • Börsch-Supan, Axel & Ludwig, Alexander & Winter, Joachim, 2004. "Aging, Pension Reform, and Capital Flows:," Sonderforschungsbereich 504 Publications 04-65, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:04-65
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, VW Foundation, the Land of Baden Württemberg, the Gesamtverband der deutschen Versicherungswirtschaft, and the US Social Security Administration is gratefully acknowledged.
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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp04-65.pdf
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    References listed on IDEAS

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    1. B Rsch-Supan, Axel H. & Jens K Ke, F. & Winter, Joachim K., 2005. "Pension reform, savings behavior, and capital market performance," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(01), pages 87-107, March.
    2. Axel Boersch-Supan & Florian Heiss & Alexander Ludwig & Joachim Winter, 2003. "Pension Reform, Capital Markets and the Rate of Return," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 151-181, May.
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    Cited by:

    1. Axel Börsch-Supan & Alexander Ludwig & Joachim Winter, 2006. "Ageing, Pension Reform and Capital Flows: A Multi-Country Simulation Model," Economica, London School of Economics and Political Science, vol. 73(292), pages 625-658, November.
    2. Axel Börsch-Supan & Alexander Ludwig, 2010. "Old Europe Ages: Reforms and Reform Backlashes," NBER Chapters,in: Demography and the Economy, pages 169-204 National Bureau of Economic Research, Inc.
    3. Andras Simonovits, 2012. "Pension Reforms in an Aging Society: A Fully Displayed Cohort Model," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 4, pages 1-30, December.
    4. Börsch-Supan, Axel, 2007. "Rational Pension Reform," Sonderforschungsbereich 504 Publications 07-25, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    5. Axel Börsch-Supan & Alexander Ludwig & Anette Reil-Held, 2004. "Hochrechnungsmethoden und Szenarien für gesetzliche und private Renteninformationen," MEA discussion paper series 04049, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    6. Vladimir Borgy & Xavier Chojnicki, 2009. "Labor Migration: Macroeconomic and Demographic Outlook for Europe and Neighborhood Regions," Economie Internationale, CEPII research center, issue 119, pages 115-153.
    7. Vladimir Borgy & Xavier Chojnicki & Gilles Le Garrec & Cyrille Schwellnus, 2010. "Macroeconomic Consequences of Global Endogenous Migration: a General Equilibrium Analysis," Annals of Economics and Statistics, GENES, issue 97-98, pages 13-39.
    8. Jan Babecky & Kamil Dybczak, 2009. "The Impact of Population Ageing on the Czech Economy," Working Papers 2009/1, Czech National Bank, Research Department.
    9. Christian Jaag, 2005. "The Role of Endogenous Skill Choice in an Aging Economy," Public Economics 0505005, EconWPA.
    10. Börsch-Supan, Axel & Ludwig, Alexander & Reil-Held, Anette, 2004. "Projection methods and scenarios for public and private pension information," Sonderforschungsbereich 504 Publications 04-61, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    11. Kara, Engin & von Thadden, Leopold, 2016. "Interest Rate Effects Of Demographic Changes In A New Keynesian Life-Cycle Framework," Macroeconomic Dynamics, Cambridge University Press, vol. 20(01), pages 120-164, January.
    12. Simonovits, András, 2009. "Népességöregedés, tb-nyugdíj és megtakarítás - parametrikus nyugdíjreformok
      [Population aging, the public pension system, and savings: parametric pension reforms]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 297-321.
    13. Alexander W. Hoffmaister & Mario Catalan & Jaime Guajardo, 2007. "Addressing the Macroeconomic Consequences of Aging in Cyprus: The Case for Pension Reform," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 1(1), pages 3-25, June.
    14. Mario Catalan & Nicolas E Magud, 2012. "A Tradeoff between the Output and Current Account Effects of Pension Reform," IMF Working Papers 12/283, International Monetary Fund.
    15. Tosun, Mehmet S., 2011. "Demographic Divide and Labor Migration in the Euro-Mediterranean Region," IZA Discussion Papers 6188, Institute for the Study of Labor (IZA).
    16. Patrick Georges, 2012. "Trade Diversification Away from the U.S. or North American Customs Union? A Review of Canada’s Trade Policy Options," Working Papers 1205E, University of Ottawa, Department of Economics.
    17. Börsch-Supan, Axel & Ludwig, Alexander & Sommer, Mathias, 2005. "Aging and Asset Prices," Sonderforschungsbereich 504 Publications 07-29, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    18. Axel Börsch-Supan, 2004. "Global Aging: Issues, Answers, More Questions," MEA discussion paper series 04055, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    19. repec:dau:papers:123456789/7972 is not listed on IDEAS
    20. Börsch-Supan, Axel, 2004. "Global aging : issues, answers, more questions," Papers 07-28, Sonderforschungsbreich 504.
    21. Börsch-Supan, Axel, 2004. "GLOBAL AGING - Issues, Answers, More Questions," Sonderforschungsbereich 504 Publications 07-28, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.

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