Pension Reform, Private Saving, and the Current Account in a Small Open Economy
October 1, 2000
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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.
Subject: Expenditure, Labor, National accounts, Payroll tax, Pension reform, Pension spending, Pensions, Private savings, Taxes
Keywords: budget constraint, current account, FF pillar, open economy, PAYG pillar, PAYG system, Payroll tax, pension reform, Pension spending, Pensions, pillar saving, Private savings, rate of return, saving, WP
Pages:
30
Volume:
2000
DOI:
Issue:
171
Series:
Working Paper No. 2000/171
Stock No:
WPIEA1712000
ISBN:
9781451858495
ISSN:
1018-5941
