A Framework for Assessing the Costs of Pension Reform Reversals

71 Pages Posted: 20 Apr 2020

See all articles by Daniel Baksa

Daniel Baksa

International Monetary Fund (IMF)

Zsuzsa Munkacsi

International Monetary Fund (IMF)

Carolin Nerlich

European Central Bank (ECB) - Directorate General Economics

Date Written: April, 2020

Abstract

Several European countries are currently considering reversing parts of their pension reforms that were adopted previously to improve sustainability. In this paper we present a framework that allows us to quantify the macroeconomic and fiscal costs of such reversals. We thereby integrate the country-specific information from the latest Ageing Report into a dynamic general equilibrium model with overlapping generations. Focusing on Germany and Slovakia as country cases, our model replicates the Ageing Report's pension expenditure projections very well. We calculate the macroeconomic impact of first the additional pension reforms needed to contain the public debt pressures arising from population ageing and second the costs of reform reversals. Our model results show that undoing past pension reforms would generate substantial adverse macroeconomic costs and could pose challenges for fiscal sustainability.

Keywords: Ageing Report, overlapping generations model, population ageing, public pension, reform reversals

JEL Classification: H55, J11, J26

Suggested Citation

Baksa, Daniel and Munkacsi, Zsuzsa and Nerlich, Carolin, A Framework for Assessing the Costs of Pension Reform Reversals (April, 2020). ECB Working Paper No. 2396. Available at SSRN: https://ssrn.com/abstract=3580828

Daniel Baksa (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Zsuzsa Munkacsi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Carolin Nerlich

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
29
Abstract Views
192
PlumX Metrics