Longer lives and fertility far below the replacement level of 2.1 births per woman are leading to rapid population aging in many countries. Many observers are concerned that aging will adversely affect public finances and standards of living. Analysis of newly available National Transfer Accounts data for 40 countries shows that fertility well above replacement would typically be most beneficial for government budgets. However, fertility near replacement would be most beneficial for standards of living when the analysis includes the effects of age structure on families as well as governments. And fertility below replacement would maximize per capita consumption when the cost of providing capital for a growing labor force is taken into account. While low fertility will indeed challenge government programs and very low fertility undermines living standards, we find that moderately low fertility and population decline favor the broader material standard of living.
COBISS.SI-ID: 22246886
This paper investigates the role of recent pension reforms for the development of the social security system and economic growth in Austria. We use a computable general equilibrium model that is built up of overlapping generations that differ by their household structure, longevity, educational attainment, and capital accumulation. Each household optimally decides over its consumption paths, work effort, and retirement age according to the life-cycle theory of labor, while they face survival risk. We find that the pension reforms implemented from 2000 to 2004, although in the correct direction, are not sufficient to solve the labor market distortion caused by the Austrian pay-as-you-go (PAYG) pension system. Using alternative policy options, our simulations indicate that a change to a notional defined contribution system and an increase in the educational distribution of the work force would increase the incentive for later retirement ages and thereby increase labor supply and economic growth.
COBISS.SI-ID: 21457638
The article analyses the re-distributive effect attained by personal income tax, social security contributions and social benefits in Slovenia and Croatia. The re-distributive effect is decomposed first to reveal progressivity and horizontal inequity effects, and further to show contributions of different tax and benefit instruments. Even though both countries started from the same socioeconomic background two decades ago, the current results reveal divergence that is a consequence of diverse development during this period. The results indicate that Croatia experienced significantly higher pre-fiscal income inequality and lower re-distributive effect than Slovenia. Horizontal inequity effects, though, were higher in Slovenia than in Croatia. In both countries, the means-tested social benefits exerted an over-proportionate influence on the vertical effect, suggesting a strong impact of the welfare state on income position of their residents, but also induced a large amount of horizontal inequity. In Slovenia, the non-means-tested benefits slightly increased income inequality.
COBISS.SI-ID: 1688974
Rapidly aging population in high-income countries has exerted additional pressure on the sustainability of public pension expenditure. We present a theoretical model of public pension expenditure under endogenous human capital, where the latter facilitates a substantial decrease in equilibrium fertility rate alongside the improvement in life expectancy. We demonstrate how higher life expectancy and human capital endowment facilitate a rise of net replacement rate. We then provide and examine an empirical model of old-age expenditure in a panel of 33 countries for the period 1998-2008. Our results indicate that increases in effective retirement age and total fertility rate would reduce age-related expenditure substantially. While higher net replacement rate would alleviate the risk of old-age poverty, further increases would add considerable pressure on the fiscal sustainability of public pensions.
COBISS.SI-ID: 1721486
Support ratio and dependency ratio are widely used as indicators for measuring the effects of population ageing on economic development. However, both of these indicators use fixed age limits to distinguish between the working and the dependent populations. We apply age-specific profiles of consumption and labour income derived by NTA method instead of using arbitrary age limits. In this way we improve the above mentioned indicators and we study the impact of changes in the age structure on the economy. In the calculations we apply the National Transfer Accounts (NTA) method, which offers a comprehensive analysis of economic flows across age groups. Because NTA combine micro (survey) data and macro controls, they provide detailed profiles of consumption and labour income by age, as well as age profiles of transfers and assets, through which the differences between consumption and labour income are covered. The results show that the decline in support ratio will be even larger in the future if using NTA age profiles instead of the fixed age limits. On the other hand, the decline could be mitigated through higher savings and wealth induced by population ageing. However, the magnitude of this channel depends on how the consumption of elderly is financed – it is substantial only if the share of asset income in covering consumption is high enough. It turns out that only in the UK, Germany, and Spain this effect is important, but not in Slovenia. We offer for the first time a European comparative study on the effect of changes in the age structure in the economy based on NTA data.
COBISS.SI-ID: 22002150