The Forecasting Model of the Italian Pension System Built by the Department of General Accounts: Some Methodological Issues
Bank of Italy - Fiscal Sustainability Conference, p. 343, 2000
22 Pages Posted: 18 Jul 2012
Date Written: January 20, 2000
Abstract
Rocco Aprile and Aurelio Sidoti present the forecasting model developed by the Italian Ministry of Treasury in order to evaluate the long-term prospects of the pension system. The model is characterised by the effort to consider in detail the legal and institutional framework. In particular, it caters for the different solutions introduced by the reforms enacted in the 1990s for members of the various pension plans, and for workers of different age and contributory periods. Individuals are grouped according to several state variables (such as age, pension regime, etc.). For each combination of state variables, the model estimates the average relevant monetary variables (pension, contributions and earnings), the variance and a distribution function. Transition matrices define the probability of moving from one state to another. The paper focuses on recent methodological refinements aimed at improving the analysis of the effects of demographic changes on employment. The paper shows that changes in activity and unemployment rates produce sizeable effects on the expenditure to GDP ratio for several decades but do not affect the steady state level of the ratio, which depends only on the structure of the pension system.
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