Working Paper: NBER ID: w18009
Authors: Axel H. Börsch-Supan
Abstract: Many European countries have begun (or have announced) programs intended to reduce the growth of entitlement programs, in particular of public pensions. \n\nCurrent costs are high, and the pressures will increase due to population aging and negative incentive effects. This paper focuses on the pension reform process in Europe. It links the causes for current problems to the cures required to make the pay-as-you-go entitlement programs in Continental Europe sustainable above and beyond the financial crisis. It discusses examples which appear, from a current point of view, to be the most viable and effective options to bring entitlement systems closer to fiscal balance and still achieve their key aims.\n\nThere is no single policy prescription that can solve all problems at once. Reform elements include a freeze in the contribution and tax rates, an indexation of benefits to the dependency ratio, measures to stop the current trend towards early retirement, an adaptation of the normal retirement age to increased life expectancy, and more reliance on private savings - elements of a sustainable but complex multipillar system of pensions and similar entitlement programs.
Keywords: Pension Reform; Entitlement Programs; Fiscal Sustainability; Demographic Change
JEL Codes: H51; H55; H68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Population aging (J11) | Increased pension costs (J32) |
| Increased pension costs (J32) | Fiscal instability (E62) |
| Design flaws in pension systems (H55) | Negative incentive effects on labor supply (H31) |
| Negative incentive effects on labor supply (H31) | Economic growth (O49) |
| Design flaws in pension systems (H55) | Pension sustainability (H55) |
| Reform measures (E69) | Improvements in fiscal stability (H69) |