A Framework for Assessing the Costs of Pension Reform Reversals

By Daniel Baksa, Zsuzsa Munkacsi, Carolin Nerlich

July 17, 2020

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Daniel Baksa, Zsuzsa Munkacsi, and Carolin Nerlich. A Framework for Assessing the Costs of Pension Reform Reversals, (USA: International Monetary Fund, 2020) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Aging, Expenditure, Labor, Pension reform, Pension spending, Population and demographics, Public debt, Retirement

Keywords: Adverse impact, Ageing Report, Aging, Benefit ratio, Contribution rate, Europe, Labour force, Old-age dependency ratio, Overlapping generations model, Pension reform, Pension spending, Population ageing, Public debt-to-GDP ratio, Public pension, Reform reversals, Retirement, WP

Publication Details

Pages:

70
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/132
Stock No:

WPIEA2020132
ISBN:

9781513550497
ISSN:

1018-5941

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