Working Paper: CEPR ID: DP3509
Authors: Alain Jousten; Florence Legros
Abstract: We analyse the economic impact of a simultaneous aging shock in two countries. The countries are identical in all respects except the financing scheme of their public pension system. While one relies on capitalization, the other one relies on a pay-as-you-go scheme. We show that the two countries react very differently to the demographic shock and its financial implications. Further, we find that the presence or the absence of capital mobility considerably affects the results, both in terms of the size of the burden as in terms of international capital allocation.
Keywords: Aging; International factor mobility; Social security
JEL Codes: F21; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Type of pension system (H55) | Savings behavior in response to demographic changes (D15) |
| Demographic aging (J11) | Savings behavior in PAYG country (D14) |
| Absence of capital mobility (F21) | Financial implications of aging in PAYG country (H55) |
| Demographic aging (J11) | Financial implications of aging in PAYG country (H55) |
| Type of pension system (H55) | Financial implications of aging in PAYG country (H55) |