{
  "title": "A Tradeoff between the Output and Current Account Effects of Pension Reform",
  "publication": "IMF Working Papers, December 3, 2012",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/a-tradeoff-between-the-output-and-current-account-effects-of-pension-reform-40133",
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  "summary": "We compare the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets. We show the presence of a policy trade-off.",
  "sections": [
    {
      "heading": "Summary and central finding",
      "content": "- The paper compares the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets.\n- Central result: there is a policy trade-off.\n  - Pension reforms that increase the retirement age have a large positive effect on output, but a small (and often negative) effect on the current account.\n  - Reforms that cut pension benefits improve the current account balance but reduce output.\n  - Mixed pension reforms, which extend the working life and cut pension benefits, can simultaneously boost output and the current account."
    },
    {
      "heading": "Methodological approach and scope",
      "content": "- Topic areas: Aging; Balance of payments; Current account; Expenditure; Labor; Pension reform; Pension spending; Pensions; Population and demographics.\n- Keywords: aggregate flow constraint, Aging, current account, current account effect, dyamic general equilibrium model, effects of pension reforms, external balance, factor income, investment position, output-current account tradeoff, Pension reform, Pension spending, Pensions, policy trade-off, return on assets, saving decline, WP.\n- Working Paper context: research in progress intended to elicit comments and further debate; views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy."
    },
    {
      "heading": "Main findings (enumerated)",
      "content": "- Increasing the retirement age:\n  - Large positive effect on output.\n  - Small and often negative effect on the current account.\n- Cutting pension benefits:\n  - Improves the current account balance.\n  - Reduces output.\n- Mixed reforms (extend working life + cut benefits):\n  - Can simultaneously boost output and the current account."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Policymakers face a trade-off between policies that favor output growth and those that improve the external balance.\n- To achieve simultaneous improvements in output and the current account, consider mixed pension reforms that both extend the working life and reduce pension benefits.\n- Fiscal targets can be met through different reform designs that have distinct macroeconomic trade-offs; reform design should account for desired balance between output and current account objectives.\n\n---\n\n Content in this bundle\n\n- Wp12283\n  - Wp12283 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp12283 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/a-tradeoff-between-the-output-and-current-account-effects-of-pension-reform-40133"
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    "Authors: Mario Catalan, Nicolas E Magud",
    "Published: December 3, 2012",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475563948.001",
    "The paper compares the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets.",
    "Central result: there is a policy trade-off.",
    "Topic areas: Aging; Balance of payments; Current account; Expenditure; Labor; Pension reform; Pension spending; Pensions; Population and demographics.",
    "Keywords: aggregate flow constraint, Aging, current account, current account effect, dyamic general equilibrium model, effects of pension reforms, external balance, factor income, investment position, output-current account tradeoff, Pension reform, Pension spending, Pensions, policy trade-off, return on assets, saving decline, WP.",
    "Working Paper context: research in progress intended to elicit comments and further debate; views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.",
    "Increasing the retirement age:",
    "Cutting pension benefits:",
    "Mixed reforms (extend working life + cut benefits):",
    "Policymakers face a trade-off between policies that favor output growth and those that improve the external balance.",
    "To achieve simultaneous improvements in output and the current account, consider mixed pension reforms that both extend the working life and reduce pension benefits.",
    "Fiscal targets can be met through different reform designs that have distinct macroeconomic trade-offs; reform design should account for desired balance between output and current account objectives.",
    "**Wp12283**"
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