Pension reform in an OLG model with heterogeneous abilities

We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate growth, are all endogenous. Within each generation we distinguish individuals with high, medium or low ability to build human capital. This extension allows to investigate also the effects of pension reform on the income and welfare levels of different ability groups. Particular attention goes to the income at old-age and the welfare level of low-ability individuals. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and aggregate welfare, positive effects in a pay-as-you-go system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base. Such a regime does, however, imply welfare losses for the current low-ability generations, and rising inequality in welfare. Complementing or replacing this ‘intelligent’ pay-as-you-go system by basic and/or minimum pension components is negative for aggregate welfare, employment and growth. Better is to maintain the tight link between individual labor income and the pension also for low-ability individuals, but to strongly raise their replacement rate

Pension reform, employment by age and long-run growth

We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate per capita growth, are endogenous. Next to the characteristics of the pension system, our model assigns an important role to the composition of fiscal policy. We find that the model explains the facts remarkably well for many OECD countries. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and welfare, positive effects in a PAYG system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base.employment by age, endogenous growth, retirement, pension reform, overlapping generations

Pension reform in an OLG model with heterogeneous abilities

We study the effects of pension reform on hours worked, human capital, income and welfare in an open economy populated by four overlapping generations: three active generations (the young, the middle aged and the older) and one generation of retired. Within each generation we distinguish individuals with high, medium or low ability to build human capital. Our simulation results prefer a pay-as-you-go pension system with a particular earnings-related linkage above a fully-funded private system. This pay-as-you-go system conditions pension benefits on past individual labor income, with a high weight on labor income earned when older and a low weight on labor income earned when young. Uncorrected, however, such a system implies welfare losses for current low-ability generations and rising inequality. Complementing or replacing it by basic and/or minimum pension components is negative for aggregate employment and welfare. Better is to maintain the tight link between individual labor income and the pension also for low-ability individuals, but to strongly raise their replacement rate. An additional correction improving the welfare of low-ability individuals would be to maintain for these individuals equal weights on past labor income

Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium

We build and parameterize a general equilibrium OLG model that explains hours worked by three active generations, education by the young, the retirement decision of older workers, and aggregate per capita growth as functions of the level and structure of taxes and government expenditures. We find that our model’s predictions match the facts remarkably well for all key variables in many OECD countries. We then use the model to investigate the effects of various fiscal policy shocks. To promote employment, especially among older workers, and economic growth, our results strongly prefer labor tax cuts targeted at older workers and higher productive government expenditures financed by a reduction of non-employment benefits and/or higher consumption taxes. We also evaluate the welfare effects for current and future generations of alternative policy changes

Begrotingsbeleid voor werkgelegenheid en groei zonder ongelijkheid

Op basis van simulaties met een algemeen evenwichtsmodel blijkt dat het mogelijk is om door middel van begrotingsbeleid de werkgelegenheid en arbeidsproductiviteit substantieel te verhogen zonder dat de ongelijkheid toeneemt. Met name een verlaging van de belasting op arbeid voor oudere werknemers en laaggeschoolden is kansrijk. Een dergelijke belastingverlaging kan mogelijk gefinancierd worden door lagere uitkeringen en hogere consumptiebelastingen

Effecten van pensioenhervorming op werkgelegenheid, scholing en groei

De vergrijzing legt een grote druk op de welvaartsstaat in de meeste OESO-landen. De bezorgdheid omtrent de langetermijn betaalbaarheid van het publieke pensioensysteem is dan ook sterk toegenomen. Om de pensioenuitdaging aan te pakken, is er vooral eensgezindheid omtrent de nood aan (i) een hogere werkgelegenheid van ouderen en (ii) een sterkere per capita economische groei (productiviteitsgroei). Over de noodzakelijke hervormingen om deze doelstellingen te realiseren is er echter minder duidelijkheid. Dit artikel onderzoekt welke pensioenhervormingen kunnen bijdragen tot werkgelegenheid, groei en welvaart. We wijzen op een aantal belangrijke gedragsimplicaties van de specifieke kenmerken van het pensioensysteem. Zo blijkt onder andere dat een goed geconstrueerd repartitiestelsel beter kan presteren dan een kapitalisatiestelsel. Wenselijk zijn een nauwe band tussen het pensioen en het arbeidsinkomen; vooral het arbeidsinkomen verdiend tussen 40 en 65