Aging, Pension Reform, and Capital Flows:
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
|Date of creation:||22 Dec 2004|
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|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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- Florian Heiss & Alexander Ludwig & Joachim Winter, 2002.
"Pension reform, capital markets, and the rate of return,"
MEA discussion paper series
02023, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- 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, 05.
- Börsch-Supan, Axel & Heiss, Florian & Winter, Joachim, 2000. "Pension reform, capital markets, and the rate of return," Discussion Papers 589, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
- Börsch-Supan, Axel H. & Heiss, Florian & Ludwig, Alexander & Winter, Joachim, 2003. "Pension reform, capital markets and the rate of return," Munich Reprints in Economics 20200, University of Munich, Department of Economics.
- 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.
- Axel Börsch-Supan & Jens Köke & Joachim Winter, 2004. "Pension reform, savings behavior and capital market performance," MEA discussion paper series 04053, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
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