Pension Reform and Wealth Inequality: Evidence from Denmark

Torben M. Andersen, Joydeep Bhattacharya, Anna Grodecka-Messi, Katja Mann*

*Corresponding author for this work

Research output: Working paperResearch

Abstract

A growing literature explores reasons for rising wealth inequality, but disregards the role of pension systems despite their well-understood influence on life-cycle saving. In theory and according to available evidence, both pay-as-you-go (PAYG) and fully-funded (FF) pension schemes crowd out voluntary retirement saving. They differ because aggregate savings decrease in the former but increase under the latter system. Unlike most nations, Denmark has seen a decline in wealth inequality in recent decades. This paper studies a calibrated life-cycle model of Denmark and employs unique registry data to argue that a Danish pension system transition, from a mostly PAYG to a dominant, mandated FF scheme, explains much of this decline.
Original languageEnglish
Place of PublicationLondon
PublisherCentre for Economic Policy Research
Number of pages58
Publication statusPublished - Feb 2022
SeriesCentre for Economic Policy Research. Discussion Papers
NumberDP17078
ISSN0265-8003

Keywords

  • Wealth inequality
  • Pension systems
  • Crowding out
  • Life-cycle savings

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