Sustainability of the Slovenian Pension System: An Analysis with an Overlapping-Generations General Equilibrium Model

Abstract:     
The article presents an analysis of welfare effects in Slovenia, an analysis of macroeconomic effects of the Slovenian pension reform and an analysis of effects of the pension fund deficit on sustainability of Slovenian public finances with a dynamic OLG general equilibrium model. It has been established that while young generations and new generations will lose from the pension reform, even complete implementation of the reform might not be sufficient to compensate unfavourable demographic developments. The level of expected deficit of the PAYG-financed state pension fund seems to be most worrying. Financing the pension system with VAT revenues as an extreme case could result in more sustainable public finances, since GDP and welfare levels ought to increase, yet this might be infeasible to implement politically, given that the generations of voters would have their welfare decreased. In addition, the present pension system is intransparent and tremendously complicated and should primarily be made more comprehensible to the public.

Number of Pages in PDF File: 27

Keywords: general equilibrium models, macroeconomic effects, OLG-GE, PAYG, pension system, sustainability of public finances, Slovenia, welfare analysis

JEL Classification: C68, D58, D61, D91, E62, H55

Accepted Paper Series