Voting on Parametric Reforms of the Pay-As-You-Go Pension System

Abstract

We assess the political support for parametric reforms of the Pay-As-You-Go pension system following a downward fertility shock. Using a continuous time overlapping generations model, we show that, depending on the shape of the utility function, a majority of the population may favor an increase in the contribution rate or a drop in pension benefits. Our framework also allows us to evaluate the political support for raising the retirement age and to determine how the timing of the different reforms affect their political support.