Demographic change, PAYG pensions and child policies

2016 ◽  
Vol 17 (4) ◽  
pp. 469-487 ◽  
Author(s):  
PETER JOSEF STAUVERMANN ◽  
RONALD RAVINESH KUMAR
Keyword(s):  
Life Expectancy ◽  
Open Economy ◽  
Pension System ◽  
Small Open Economy ◽  
Overlapping Generations Model ◽  
Number Of Children ◽  
Payg Pensions ◽  
Child Allowances ◽  
Pension Benefits ◽  
Consequent Increase

AbstractThe aim of the paper is to investigate how child policies affect the population growth and to what extent these policies are useful to increase pension benefits of a pay-as-you-go pension system in a small open economy. Specifically, we analyze two different child policies: the provision of child allowances and an educational subsidy. We apply an overlapping generations model in its canonical form, where we consider endogenous fertility, endogenous growth and endogenous aging of the society. From the analysis, we conclude that with a child allowance, there is a consequent increase in the number of children and decrease in pension benefits and life expectancy. On the other hand, we note that with an educational subsidy, there is a decrease in the number of children, and an increase in the pension benefits and the life expectancy, respectively. The model developed aims to complement the models of the Unified Growth Theory.

scholarly journals Why Child Allowances Fail to Solve the Pension Problem of Aging Societies

Economies ◽  
2019 ◽  
Vol 7 (4) ◽  
pp. 117
Author(s):  
Peter J. Stauvermann ◽  
Frank Wernitz
Keyword(s):  
Open Economy ◽  
Capital Accumulation ◽  
Small Open Economy ◽  
Closed Economy ◽  
Closed Economies ◽  
Number Of Children ◽  
Long Run ◽  
Child Allowances ◽  
Aging Societies ◽  
Pension Benefits

The aim of the paper is to investigate how child allowances affect population growth and pension benefits of pay-as-you-go (PAYG) pension systems in small open and closed economies. We apply an overlapping-generations (OLG) model in its canonical form, where we consider endogenous fertility and growth generated by human capital accumulation. From the analysis, we conclude that in a small open economy, child allowances increase the number of children, yet decrease pension benefits over the long run. If we consider a closed economy, the effect of child allowances on fertility is ambiguous and remains negative on pension benefits over the long run.

scholarly journals How the Pension System Responds to Pandemic Shocks: A Case Study of Georgia

2021 ◽  
Vol 17 (5) ◽  
Author(s):  
Maka Ghaniashvili
Keyword(s):  
Life Expectancy ◽  
Pension System ◽  
Pension Reform ◽  
Age Distribution ◽  
Financial Strain ◽  
Significant Step ◽  
Pros And Cons ◽  
Pension Benefits ◽  
The Impact ◽  
Fiscal Risks

The paper focuses on the impact of the pandemic crisis on pension system in Georgia and analyzes the pros and cons of the ongoing pension reforms in the country. Decreased birth rates and increased life expectancy over the next decades will significantly change the picture of the age distribution of the population in many countries. As life expectancy increases and the birth rate decreases, more people retire than are added to the workforce. A change in the demographic picture necessitates fundamental pension reform. At the same time, the world is facing a crisis caused by the COVID-19 pandemic. The future is uncertain, both medically and financially. Despite optimistic forecasts, the second wave of the COVID-19 pandemic has begun in many countries which further increases the degree of uncertainty. Funded pension schemes suffer from the crisis because lower returns diminish their asset values, while low yields on public debt instruments increase the present value of their liabilities. This can generate both explicit fiscal risks— in the case of government guarantees—and implicit fiscal risks through lower private pension benefits or financial strain on the sponsoring employers. Our research is focused on the pension system and its development problems in Georgia, taking into account that since 2019, 1st January, the existing financial, demographic and economic challenges have determined the establishment of a new pension system. Main sources for the research are data gathered from the international organizations and local governmental and statistical data softwares. Our research results show that the pension reform launched in 2019 in Georgia is a significant step forward in reducing social imbalances and fiscal pressures in the medium / long term. However, for further development, it is important to systematically assess the effectiveness of pension policies, taking into account factors such as changes in demographic structure, expected fiscal spending, the inequality gap and the crisis caused by the COVID-19 pandemic.

scholarly journals Pension reform in an OLG model with heterogeneous abilities

2015 ◽  
Vol 16 (2) ◽  
pp. 144-172 ◽  
Author(s):  
TIM BUYSE ◽  
FREDDY HEYLEN ◽  
RENAAT VAN DE KERCKHOVE
Keyword(s):  
Human Capital ◽  
Open Economy ◽  
Pension System ◽  
Pension Reform ◽  
Labor Income ◽  
Replacement Rate ◽  
Welfare Losses ◽  
Low Weight ◽  
Pension Benefits ◽  
Low Ability

AbstractWe 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.

Pensions: the impact of migrations and cross-border workers in a small open economy

2018 ◽  
Vol 18 (2) ◽  
pp. 247-270 ◽  
Author(s):  
MARION LABOURÉ
Keyword(s):  
Economic Growth ◽  
Open Economy ◽  
Pension System ◽  
Small Open Economy ◽  
Future Evolution ◽  
Cross Border ◽  
Age Pyramid ◽  
High Volatility ◽  
Set Up ◽  
The Impact

AbstractThe pension system brings challenges in many high-income countries. While the system was set up at the time of economic growth, policymakers are facing both economic slowdown and aging population. Moreover, there is an incentive mis-match between short to medium term popularity and re-election versus taking necessary decisions to affect long-term sustainability of the system. In a small open economy, the situation is further accentuated by high volatility driven by migrations and cross-borders workers. This paper aims to address the policymakers’ challenges and develops an innovative model, whose main contribution is the way it reflects the cross-border workers’ contribution and impact. Therefore, it allows to not only assess the state liabilities, but also the evolution of the age pyramid with a significant portion of new migrants and cross-border workers, considering the high volatility of workers. It also provides an approach to analyze issues at stake and remove decision biases faced by politicians through policy options and their impact under various economic scenarios. With the model in hand, we analyze three different scenarios for the future evolution of Luxembourg's pension system. In all three scenarios, the results reflect a significant imbalance of the pension system over time (to 2060), going from 1.6% of gross domestic product (GDP) surplus in the best scenario to 14.2% of GDP deficit in the worst scenario. The probability of this worst scenario is related with a worsening of the economic situation, with job destruction and a drop in economic growth impacting cross-border commuters and net migrations.

scholarly journals A Note on Child Policy and Fertility in an Overlapping Generations Small Open Economy: When the Labour Market Institutions Matter

2012 ◽  
Vol 2012 ◽  
pp. 1-6
Author(s):  
Luciano Fanti ◽  
Luca Gori
Keyword(s):  
Labour Market ◽  
Open Economy ◽  
Overlapping Generations ◽  
Small Open Economy ◽  
Public Provision ◽  
Market Institutions ◽  
Labour Market Institutions ◽  
The Public ◽  
Child Policy ◽  
Child Allowances

We examine how fertility reacts to the public provision of child allowances in a small open economy with overlapping generations. When the labour market is competitive, we find that a child allowance policy acts as a fertility-enhancing device. In contrast, when the labour market is unionised the child policy may be ineffective.

scholarly journals Education, demographics, and the economy

2007 ◽  
Vol 8 (2) ◽  
pp. 189-223 ◽  
Author(s):  
CHRISTIAN JAAG
Keyword(s):  
Open Economy ◽  
Overlapping Generations ◽  
Pension System ◽  
Population Aging ◽  
Small Open Economy ◽  
Production Structure ◽  
Human Capital Formation ◽  
Policy Measure ◽  
Education Decisions ◽  
Final Output

AbstractThis paper deals with two issues concerning the effects of population aging on education decisions in the presence of a PAYG pension system: We first analyze the effects of an aging population per se on individual skill choices and continuous education and the production structure. Second, we study the implications of postponed retirement, which is often proposed as a measure to cope with the economic challenges of increased longevity. Our study uses a dynamic general equilibrium framework with overlapping generations and probabilistic aging. The model allows for capital–skill complementarity in the production of final output.As a response to population aging, in a small open economy with a fixed interest rate, our first simulation shows that GDP is depressed due to an adverse effect on skill choice and labor supply. We then introduce postponed retirement as a potentially dampening policy measure due to its encouragement of human capital formation. However, since there is less private saving in this scenario, the overall effect on GDP is even worse than in the pure aging scenario.

Pension reform in france as a balance between adequacy and stability

2021 ◽  
Vol 72 (5) ◽  
pp. 95-102
Author(s):  
N. Zelenko ◽  
V. Zelenko
Keyword(s):  
Life Expectancy ◽  
Financial Stability ◽  
Pension System ◽  
Pension Scheme ◽  
Occupational Pension ◽  
Defined Benefit ◽  
Member States ◽  
Eu Member States ◽  
The Government ◽  
Pension Benefits

In this paper the authors analyze the main aspects and problems of reforming the French pension system. Most EU member states have been forced to review their system due to the coronavirus crisis, at least to make temporary adjustments. Given European aging population, declining birth rates and increased life expectancy, the associated increase in the age dependency ratio is creating tensions for underfunded defined benefit pension systems. This implicit pension debt has important macroeconomic implications. In France, the structure of the pension system provides for the existence of solidarity component, occupational pension schemes, as well as personal (which are not popular in this country). Sometimes there are significant differences in pension benefits between public and private sector workers with the same earnings, although this difference is much lower than in many other EU member states. Starting from July 1, 2017, no new pension reforms have been implemented in France, as the project proposed by the government and President Macron has received significant opposition from both trade unions and a large part of the population, as the creation of the so-called “Universal pension scheme” provides significant reduction in the rights of future retirees. In general, the choice of restrictive rules that reflect trends in wages, employment and life expectancy is critical for the proper updated system management. Preservation of the French pension system in the near future provides the increase in retirement age or extension of insurance to receive full pension benefits. The results of scientific research indicate the need to apply the adjusted strategy for further reforms, compared to their original versions. The reform proposed by the government and the president is aimed mostly at achieving long-term financial stability of the pension system. As for the adequacy of pension benefits, for some categories of citizens it can be decreased. Therefore, the reform envisages new configurations between the financial stability of the pension system along with ensuring the adequacy of the pension benefits amount.

Consequences for welfare and pension buffers of alternative methods of discounting future pensions

2010 ◽  
Vol 10 (3) ◽  
pp. 389-415 ◽  
Author(s):  
ALESSANDRO BUCCIOL ◽  
ROEL M. W. J. BEETSMA
Keyword(s):  
The Netherlands ◽  
Open Economy ◽  
Pension System ◽  
Moving Average ◽  
Small Open Economy ◽  
Pension Funds ◽  
Alternative Methods ◽  
Olg Model ◽  
Pension Liabilities ◽  
Over Time

AbstractWe explore the implications of alternative methods of discounting future pension outlays for the valuation of funded pension liabilities. Measured liabilities affect the asset–liability ratio of pension funds and, thereby, their policies. Our framework for analysis is an applied many-generation OLG model describing a small open economy with heterogeneous agents and a two-pillar pension system (with pay-as-you-go and funded tiers) calibrated to that in the Netherlands. We compare mark-to-market discounting against various alternatives, such as discounting against a moving average of past market curves or a curve that is constant over time. The pension buffer is stabilized by adjusting indexation and contribution rates in response to demographic, economic and financial shocks in the economy. Mark-to-market valuation of liabilities produces substantially higher volatility in the pension buffers, but it also generates slightly higher aggregate welfare.

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