Luxembourg: Selected Issues

International Monetary Fund

No 2019/131, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper studies the fiscal and macroeconomic impact of different reform options. It analyzes the impact of an increase in the contribution rate, a reduction of benefits, and an increase in the retirement age. Although all reform options can lead to the fiscal sustainability of the system, there are important macroeconomic trade-offs among them. Although the Luxembourg’s pension system is sound over the near term, further reforms are needed to ensure its long-term sustainability. This paper explored the fiscal and macroeconomic impact of several reform options: an increase in the contribution rate, a reduction of benefits, and an increase in the retirement age. Although all these reforms would help ensuring fiscal long-term sustainability, there are important macroeconomic trade-offs. Even though an increase in contribution rates can be implemented immediately, it introduces distortions in the labor market which lead to a decline in GDP in addition to a decline in consumption.

Keywords: ISCR; CR; GDP; pension system; retirement age; consumption; income; pension expenditure; pension reserve; contribution rate; GDP share; EC's Ageing Report; life cycle income; replacement rate; Pension spending; Aging; Pensions; Pension reform; Retirement; Europe; Global (search for similar items in EconPapers)
Pages: 15
Date: 2019-05-10
New Economics Papers: this item is included in nep-age
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