Aging, Intergenerational Distribution and Public Pension Systems

Svend E. Hougaard Jensen, Søren Bo Nielsen

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This paper develops an intertemporal simulation model capable of addressing the macroeconomic and distributional effects of demographic shocks in a small open economy. Two sources of population aging are examined, viz. lower birth rates and prolonged expected lifetimes at retirement age. Due to strong expectational effects, both shocks are found to change average consumption in a downward direction, in the short run as well as in the long run. This effect is matched by a strong net acquisition of foreign assets. Furthermore, it turns out that the intergenerational distribution of the burden of adjusting to an aging population is strongly dependent on whether the benefit rate, the contribution rate, or the relative non-capital income of pensioners and workers is held fixed.
Original languageEnglish
JournalPublic Finance
Issue numberSupplement
Pages (from-to)29-42
Publication statusPublished - Feb 1993

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