 Public pensions reforms: Financial and political sustainabilityJavier Díaz-Giménez and Julián Díaz-Saavedra European Economic Review, 2025, vol. 175, issue C Abstract: One main reason for the unsustainability of future pensions in many European countries is a failure to adapt to very long-term demographic trends. Also, a reform to address financing issues can be an occasion to improve pension design. Sometimes, however, such pension reforms are likely to be overturned when they lead to significant short-term losses in retirement income. We use an overlapping generations economy with incomplete insurance markets to show that, with an appropriate design, sustainable pay-as-you go systems can greatly outperform current outdated pension systems. We show this in a calibrated model of the Spanish economy, since Spain is a fairly extreme case of the aforementioned failures to introduce a dynamic pension design to deal with an ageing population. Moreover, by comparing the effect of its ageing transition under these different pension systems, we also show how a fast transition, from the current to a reformed PAYG system can be Pareto-improving, while minimizing the risk of political reversal. Keywords: Overlapping generations; Social security reform; Redistribution (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:175:y:2025:i:c:s0014292125000388 DOI: 10.1016/j.euroecorev.2025.104988 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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