Sustainable and equitable pensions with means testing in aging economies

George Kudrna (), Chung Tran and Alan Woodland

European Economic Review, 2022, vol. 141, issue C

Abstract: A means-tested pension system has a distinct feature that tailors the level of pension benefits according to individual economic status. In the context of population aging with widening gaps in life expectancies, we show that this feature generates an automatic mechanism that (i) mitigates the pressing fiscal cost of an old-age public pension program (fiscal stabilization device) and (ii) redistributes pension benefits to those in need with shorter life expectancies (redistributive device). To evaluate this automatic mechanism, we employ an overlapping generations model with population aging. Our results indicate that this novel mechanism plays an important role in containing the adverse effects of population aging on the fiscal costs and enhancing the progressivity of a pension system. More pronounced aging scenarios further strengthen the role of this mechanism. A well-designed means test rule can create a sufficiently strong automatic mechanism to keep public pensions sustainable and progressive under population aging.

Keywords: Population aging; Sustainability; Social security; Means testing; Redistribution; Automatic stabilizer; Overlapping generations; Dynamic general equilibrium (search for similar items in EconPapers)
JEL-codes: C68 H2 H55 J1 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Sustainable and Equitable Pensions with Means Testing in Aging Economies (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:141:y:2022:i:c:s0014292121002415

DOI: 10.1016/j.euroecorev.2021.103947

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