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A Tradeoff between the Output and Current Account Effects of Pension Reform
Author:
Mr. Mario Catalan
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https://orcid.org/0000-0003-3165-822X
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Mr. Nicolas E Magud
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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 283
Language:
English
Publication Date:
03 Dec 2012
DOI:
https://doi.org/10.5089/9781475563948.001
ISBN:
9781475563948
ISSN:
1018-5941
Pages:
24
Keywords:
WP; current account; Pension reform; external balance; dyamic general equilibrium model; output-current account tradeoff; current account effect; investment position; saving decline; effects of pension reforms; aggregate flow constraint; return on assets; Pension spending; Pensions; Aging; policy trade-off; factor income
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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. 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. In contrast, reforms that cut pension benefits improve the current account balance but reduce output. Mixed pension reforms, which extend the working life and cut pension benefits, can simultaneously boost output and the current account.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund