Increased Pension Savings: Blessing or Curse? Social Security Reform in a Two‐Sector Growth Model

Bas van Groezen, Lex Meijdam and Harrie A. A. Verbon

Economica, 2007, vol. 74, issue 296, 736-755

Abstract: This paper analyses the consequences of a switch to a more funded pension scheme for economic growth in an economy that consists of a capital‐intensive commodity sector with endogenous growth and a labour‐intensive services sector. The increased savings cause long‐run growth to be higher in a closed economy, provided capital and labour are not strong substitutes. The reverse holds for a small open economy. More funding can therefore turn out to be a curse instead of a blessing for future generations, unless countries implement their reforms simultaneously or impose a tax on labour‐intensive services.

Date: 2007
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https://doi.org/10.1111/j.1468-0335.2006.00557.x

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