{
  "title": "Pension Reform, Private Saving, and the Current Account in a Small Open Economy",
  "publication": "IMF Working Papers, October 1, 2000",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/pension-reform-private-saving-and-the-current-account-in-a-small-open-economy-3825",
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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.",
  "sections": [
    {
      "heading": "Summary / Abstract",
      "content": "- The paper analyzes the macroeconomic implications of substituting a high-return fully-funded pension system for a low-return pay-as-you-go (PAYG) system.\n- Framework: overlapping generations, neoclassical growth model.\n- Financing modes considered: debt-financed reform versus tax-financed reform (tax-financing is equivalent to pre-funding).\n- Behavioral assumptions compared: forward-looking individuals versus myopic individuals."
    },
    {
      "heading": "Key findings",
      "content": "- With forward-looking individuals:\n  - A debt-financed reform worsens the current account.\n  - A tax-financed reform leaves the current account unchanged.\n- With myopic individuals:\n  - A debt-financed reform leaves the current account unchanged.\n  - A tax-financed reform improves the current account.\n- Policy implication drawn: tax-financing (pre-funding) should be the preferred reform strategy in a small open economy with a weak current account position."
    },
    {
      "heading": "Model and mechanisms (concise)",
      "content": "- Reform studied: substitution of a high-return fully-funded pillar for a low-return PAYG pillar.\n- Core mechanism: interaction of financing method (debt vs tax) with private saving responses under different expectation formations (forward-looking vs myopic) determines current account outcomes."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Prefer tax-financing (pre-funding) over debt-financing when implementing a shift toward a fully-funded pension pillar in a small open economy, especially if the economy has a weak current account position.\n\nAxel Schimmelpfennig, \"Pension Reform, Private Saving, and the Current Account in a Small Open Economy\", IMF Working Paper No. 2000/171 (October 1, 2000).\n\n---\n\n Content in this bundle\n\n- Pension Reform, Private Saving, and the Current Account in a Small Open Economy- WP/00/171\n  - Pension Reform, Private Saving, and the Current Account in a Small Open Economy- WP/00/171 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Pension Reform, Private Saving, and the Current Account in a Small Open Economy- WP/00/171 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/pension-reform-private-saving-and-the-current-account-in-a-small-open-economy-3825"
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    "Authors: Axel Schimmelpfennig",
    "Published: October 1, 2000",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451858495.001",
    "The paper analyzes the macroeconomic implications of substituting a high-return fully-funded pension system for a low-return pay-as-you-go (PAYG) system.",
    "Framework: overlapping generations, neoclassical growth model.",
    "Financing modes considered: debt-financed reform versus tax-financed reform (tax-financing is equivalent to pre-funding).",
    "Behavioral assumptions compared: forward-looking individuals versus myopic individuals.",
    "With forward-looking individuals:",
    "With myopic individuals:",
    "Policy implication drawn: tax-financing (pre-funding) should be the preferred reform strategy in a small open economy with a weak current account position.",
    "Reform studied: substitution of a high-return fully-funded pillar for a low-return PAYG pillar.",
    "Core mechanism: interaction of financing method (debt vs tax) with private saving responses under different expectation formations (forward-looking vs myopic) determines current account outcomes.",
    "Prefer tax-financing (pre-funding) over debt-financing when implementing a shift toward a fully-funded pension pillar in a small open economy, especially if the economy has a weak current account position.",
    "**Pension Reform, Private Saving, and the Current Account in a Small Open Economy- WP/00/171**"
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