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Population ageing and public pension reforms in a small open economy

Theophilopoulou, A.; Rother, P.; Nickel, C.; (2008) Population ageing and public pension reforms in a small open economy. (ECB Working Paper 863). European Central Bank: Frankfurt am Main, Germany. Green open access

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Abstract

This paper aims to address the issue of public pension reforms under demographic ageing that is likely to occur in Europe over the next 50 years. Three possible scenarios are analysed in a Blanchard OLG framework. These include: i) a decrease both in public pensions and the lump sum labour income tax, ii) a decrease both in public pensions and the distortionary corporate tax, iii) an increase in the retirement age. The analysis focuses on the effects of these fiscal policies on key economic variables such as consumption, private and public debt, output and wages. Quantitative experiments assess the impact of different fiscal policies in terms of public debt sustainability but most importantly suggest policies that smooth the transition of the economy to the new equilibrium. The main results suggest that the adverse effects of pension reforms on consumption are moderated when they are accompanied by appropriate taxation policies. In particular, when the tax response is rapid most of the adverse movement in consumption is avoided while public and national debt reach lower equilibrium levels.

Type: Working / discussion paper
Title: Population ageing and public pension reforms in a small open economy
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.ecb.int/pub/scientific/wps/author/html/...
Language: English
Additional information: The ECB Working Paper is available free of charge via the ECB's homepage. ECB disclamer and copyright information available at: http://www.ecb.europa.eu/home/html/disclaimer.en.html
Keywords: Ageing, pension reforms, taxation, overlapping generations
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/18822
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