Ageing population and pension system sustainability: reforms and redistributive implications
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Ageing population and pension system sustainability: reforms and redistributive implications Davide Bazzana1 Received: 24 June 2019 / Accepted: 23 April 2020 © Springer Nature Switzerland AG 2020
Abstract The paper presents an agent-based model developed to investigate the relationship between retirement age and pension system sustainability taking into account the redistributive implication. Moreover, we investigate the role that the government can play in reducing inequality by implementing debt stabilisation policies, as for example applying a property tax. Results show that delaying the retirement age is an effective policy to raise the pension scheme sustainability. However, there is an emerging trade-off between the pension system sustainability and the extension of the pension benefits that may have intergenerational implications. Pension reforms which reduce the pension age threshold or increase the paid benefit will rise the overall pension expenditure and will negatively affect the public debt evolution which may require some stabilisation measures, as the implementation of positive property taxation. The effects of the property taxation on the debt reduction and the level of equality in the population’s wealth distribution strongly depends on the progressivity of the measure and on the size of the taxpayer population involved. The analysis evidences the crucial role played by the age dependency ratio both in achieving the pension system sustainability and in assuring the wealth distribution within the population. Keywords Pension system reform · Ageing · Fiscal sustainability · Inequality · Payas-you-go · Heterogeneity JEL Classification H55 · J26 · C63 · E62 · D63
* Davide Bazzana [email protected] 1
Dipartimento di Economia e Management, Università degli Studi di Brescia, Via San Faustino 74/b, 25122 Brescia, Italy
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Vol.:(0123456789)
Economia Politica
1 Introduction Over the last decades the older population in the developed countries has been growing steadily. From 1960 to 2017 the share of population over 65 years old is more than tripled in Japan (from 6 to 27%) while many other western countries have registered significant boosts: Italy + 14%, the US + 6%, the UK + 7% (World Bank 2017). This change in the population composition is mainly due to the increase in the life expectancy and the reduction of fertility rates. In the last years, the growth of the old population, coupled with the decrease of the active population, is exerting a continuous pressure on the public finance sustainability (Fougère and Mérette 1999; Meier and Werding 2010) which has been put to the test by the financial and sovereign debt crisis. Since demographic, economic, social and political characteristics of a country are directly linked to the establishment of its pension scheme, which should evolve accordingly (Guardiancich 2012), many countries are now challenged by the need to reform their pension schemes in order to improve the sustainability of their financial system trying to address also fairne
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