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Macroeconomic and Welfare Effects of Parametric Pension Reform in Iran

Sonia Sabzalizad Honarvar (), Hossein Raghfar () and Mirhossein Mousavi ()
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Sonia Sabzalizad Honarvar : Alzahra University
Hossein Raghfar : Alzahra University
Mirhossein Mousavi : Alzahra University

Journal of Money and Economy, 2017, vol. 12, issue 4, 455-479

Abstract: The aim of this paper is to analyze the macroeconomic effects of parametric reforms. An adjusted Auerbach-Kotlikoff model is used to study the effects of decreasing replacement and contribution rates of the pension system. The first part concentrates on the macroeconomic effect of reforms. Our results indicate that reducing the replacement and contribution rates increase the capital stock and decrease the interest rates so the economy moves closer towards the golden rule. Under these parametric reforms, there is a long-run increase in capital stock, wages, labor supply, consumption and income of the future generations. We then measure the welfare effects of different generations and finally show how to use a Lump-Sum Redistribution Authority to calculate an aggregate efficiency measure of policy reforms. Our findings suggest an aggregate efficiency gain of 32.14 % (for replacement rate) and 4.04 % (for contribution rate) compared to the initial equilibrium.

Keywords: : Stochastic OLG Model; Pension Reforms; Welfare (search for similar items in EconPapers)
JEL-codes: H55 H75 I38 J26 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:mbr:jmonec:v:12:y:2017:i:4:p:455-479