Ageing, Pension Reform and Capital Flows: A Multi‐Country Simulation Model

Abstract

Population ageing and pension reform will have profound effects on international capital markets. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping-generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from rapidly ageing regions to the rest of the world will initially be substantial, but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility. Copyright (c) The London School of Economics and Political Science 2006.

Optimal Asymmetric Taxation in a Two-Sector Model with Population Ageing

“…For this reason, we have chosen parameter values commonly reported in the literature. The annual discount factor is often chosen to be close to 1% (Börsch-Supan, Ludwig, and Winter 2006;Adema, Meijdam, and Verbon 2008). In our model, as the period is approximately equal to 35 years, the discount factor corresponds to ρ = 0.4166.…”

Beggar Thy Thrifty Neighbour: The International Spillover Effects of Pensions Under Population Ageing

“…To our knowledge our paper is one of the first taking this approach. One exception is the paper by Börsch-Supan et al (2004) who also allow for differences in the generosity of public PAYG pension schemes. In contrast to that paper, we develop a simple model that enables us to derive an analytical solution of the transition path, in order to gain insight into the underlying mechanisms of the results.…”

“…This has been established in an extensive literature, starting with a seminal paper by Cutler et al (1990), followed by a number of papers presenting simulation experiments with large multi-country overlapping-generations models (see for example Brooks (2000), Fehr et al (2003), Börsch-Supan et al (2004), Domeij and Flodén (2004), and Attanasio and Violante (2005)). …”

Intergenerational risk-sharing through funded pensions and public debt

“…However, in contrast to Matsen & Thøgersen (2004), who evaluates welfare only in the second period of an individual's life, the current paper evaluates welfare of future generations over many periods, including the working years. Borsch-Supan et al (2006) study the effects of ageing and pension reforms on international capital markets using an OLG model with multiple countries. They find that aggregate savings rates go up due to population ageing, which can be amplified by a pension reform in which the PAYG contributions are frozen and its benefits are reduced.…”

“…Examples are Matsen & Thøgersen (2004); Borsch-Supan et al (2006) and Beetsma & Bovenberg (2009). Matsen & Thøgersen (2004) investigates the optimal split between a PAYG pillar and a DC funded pillar in the context of two-OLG model with wage income, the population size and the equity return as the risk factors.…”