Advanced search
1 file | 1.47 MB Add to list

Coping with demographic change : macroeconomic performance and welfare inequality effects of public pension reform

Willem Devriendt (UGent) , Freddy Heylen (UGent) and Arthur Jacobs (UGent)
Author
Organization
Abstract
This paper evaluates alternative reforms of the public pension system in an overlapping generations model for an open economy facing demographic change. We make progress compared to existing literature on pension reform by modelling individuals with heterogeneous innate ability and endogenous human capital, and by putting (the reduction of) welfare inequality effects of reform at the centre. Frequently adopted reforms such as an increase of the normal retirement age or a decrease of the pension benefit can guarantee financial sustainability, but they fail when the objective is also to avoid intergenerational or intragenerational welfare inequality. Our results prefer a reform which combines an increase of the retirement age with an intelligent linkage between the pension benefit and earlier labour earnings. First, this design conditions pension benefits on past individual labour income, with a high weight on labour income earned when older and a low weight on labour income earned when young. Second, this linkage is complemented by a strong rise in the benefit replacement rate for low ability individuals (and a reduction for high ability individuals).
Keywords
Demographic change, Heterogeneous abilities, Inequality, Overlapping Generations, Pension reform, SOCIAL-SECURITY, RETIREMENT AGE, MODEL, REDISTRIBUTION, LONGEVITY, ECONOMY, GROWTH, TAX

Downloads

  • Devriendt-Heylen-Jacobs JPEF 2022.pdf
    • full text (Accepted manuscript)
    • |
    • open access
    • |
    • PDF
    • |
    • 1.47 MB

Citation

Please use this url to cite or link to this publication:

MLA
Devriendt, Willem, et al. “Coping with Demographic Change : Macroeconomic Performance and Welfare Inequality Effects of Public Pension Reform.” JOURNAL OF PENSION ECONOMICS & FINANCE, vol. 22, no. 3, 2023, pp. 425–49, doi:10.1017/S1474747222000051.
APA
Devriendt, W., Heylen, F., & Jacobs, A. (2023). Coping with demographic change : macroeconomic performance and welfare inequality effects of public pension reform. JOURNAL OF PENSION ECONOMICS & FINANCE, 22(3), 425–449. https://doi.org/10.1017/S1474747222000051
Chicago author-date
Devriendt, Willem, Freddy Heylen, and Arthur Jacobs. 2023. “Coping with Demographic Change : Macroeconomic Performance and Welfare Inequality Effects of Public Pension Reform.” JOURNAL OF PENSION ECONOMICS & FINANCE 22 (3): 425–49. https://doi.org/10.1017/S1474747222000051.
Chicago author-date (all authors)
Devriendt, Willem, Freddy Heylen, and Arthur Jacobs. 2023. “Coping with Demographic Change : Macroeconomic Performance and Welfare Inequality Effects of Public Pension Reform.” JOURNAL OF PENSION ECONOMICS & FINANCE 22 (3): 425–449. doi:10.1017/S1474747222000051.
Vancouver
1.
Devriendt W, Heylen F, Jacobs A. Coping with demographic change : macroeconomic performance and welfare inequality effects of public pension reform. JOURNAL OF PENSION ECONOMICS & FINANCE. 2023;22(3):425–49.
IEEE
[1]
W. Devriendt, F. Heylen, and A. Jacobs, “Coping with demographic change : macroeconomic performance and welfare inequality effects of public pension reform,” JOURNAL OF PENSION ECONOMICS & FINANCE, vol. 22, no. 3, pp. 425–449, 2023.
@article{8753615,
  abstract     = {{This paper evaluates alternative reforms of the public pension system in an overlapping generations model for an open economy facing demographic change. We make progress compared to existing literature on pension reform by modelling individuals with heterogeneous innate ability and endogenous human capital, and by putting (the reduction of) welfare inequality effects of reform at the centre. Frequently adopted reforms such as an increase of the normal retirement age or a decrease of the pension benefit can guarantee financial sustainability, but they fail when the objective is also to avoid intergenerational or intragenerational welfare inequality. Our results prefer a reform which combines an increase of the retirement age with an intelligent linkage between the pension benefit and earlier labour earnings. First, this design conditions pension benefits on past individual labour income, with a high weight on labour income earned when older and a low weight on labour income earned when young. Second, this linkage is complemented by a strong rise in the benefit replacement rate for low ability individuals (and a reduction for high ability individuals).}},
  author       = {{Devriendt, Willem and Heylen, Freddy and Jacobs, Arthur}},
  issn         = {{1474-7472}},
  journal      = {{JOURNAL OF PENSION ECONOMICS & FINANCE}},
  keywords     = {{Demographic change,Heterogeneous abilities,Inequality,Overlapping Generations,Pension reform,SOCIAL-SECURITY,RETIREMENT AGE,MODEL,REDISTRIBUTION,LONGEVITY,ECONOMY,GROWTH,TAX}},
  language     = {{eng}},
  number       = {{3}},
  pages        = {{425--449}},
  title        = {{Coping with demographic change : macroeconomic performance and welfare inequality effects of public pension reform}},
  url          = {{http://doi.org/10.1017/S1474747222000051}},
  volume       = {{22}},
  year         = {{2023}},
}

Altmetric
View in Altmetric
Web of Science
Times cited: