Placing the Greek pay-as-you-go pension scheme in the macroeconomic environment: the impact on economic activity and income distribution

Zois Gerasimos Katsimigas and Christos Papatheodorou

Journal of Post Keynesian Economics, 2025, vol. 48, issue 3, 434-477

Abstract: In recent years, the reforms implemented by Greek governments to reduce state subsidy on pensions have not yielded the expected results, and have even led to the partial capitalization of the pay-as-you-go (PAYG) pension scheme in an effort to restore the long-term sustainability of the pension sector. Taking this into account, we develop a post-Keynesian stock-flow consistent model (SFCM), to place the Greek pay-as-you-go pension scheme within the macroeconomic environment and, through its interaction with this environment, examine the impact of fiscal policies aimed at reducing state subsidy for pensions on economic activity and income distribution. Unlike most relevant studies, we consider the pension sector an integral part of the macroeconomic framework and focus on the link between functional and personal income distribution. This approach allows us to assess the effectiveness of these policies not only in terms of the state budget, but also in terms of economic growth and income inequality. The results show that a fiscal policy of increasing wages (and pensions), and thereby the wage share, renders the pay-as-you-go scheme not only sustainable but also efficient for the economy, unlike policies directly targeting reductions in the dependency ratio and pension expenditure or increases in social security contributions.

Date: 2025
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DOI: 10.1080/01603477.2025.2453177

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