Pension Reform, Private Saving, and the Current Account in a Small Open Economy

October 1, 2000

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Format: Chicago

Axel Schimmelpfennig. Pension Reform, Private Saving, and the Current Account in a Small Open Economy, (USA: International Monetary Fund, 2000) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The macroeconomic implications of a pension reform that substitutes a high-return fully-funded system for a low-return pay-as-you-go system are discussed in an overlapping generations, neoclassical growth model. With forward-looking individuals, a debt-financed reform worsens the current account, while a tax-financed reform leaves the current account unchanged. With myopic individuals, a debt-financed reform leaves the current account unchanged, while a tax-financed reform improves the current account. Hence, tax-financing, which is equivalent to pre-funding, should be the preferred reform strategy in a small open economy with a weak current account position.

Subject: Expenditure, Labor, National accounts, Payroll tax, Pension reform, Pension spending, Pensions, Private savings, Taxes

Keywords: Budget constraint, Current account, FF pillar, Open economy, PAYG pillar, PAYG system, Payroll tax, Pension reform, Pension spending, Pensions, Pillar saving, Private savings, Rate of return, Saving, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/171
Stock No:

WPIEA1712000
ISBN:

9781451858495
ISSN:

1018-5941

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