Pension Reform, Private Saving, and the Current Account in a Small Open Economy

Author/Editor:

Axel Schimmelpfennig

Publication Date:

October 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The macroeconomic implications of a pension reform that substitutes a high-return fully-funded system for a low-return pay-as-you-go system are discussed in an overlapping generations, neoclassical growth model. With forward-looking individuals, a debt-financed reform worsens the current account, while a tax-financed reform leaves the current account unchanged. With myopic individuals, a debt-financed reform leaves the current account unchanged, while a tax-financed reform improves the current account. Hence, tax-financing, which is equivalent to pre-funding, should be the preferred reform strategy in a small open economy with a weak current account position.

Series:

Working Paper No. 00/171

Subject:

English

Publication Date:

October 1, 2000

ISBN/ISSN:

9781451858495/1018-5941

Stock No:

WPIEA1712000

Format:

Paper

Pages:

30

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