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Pension reform and wealth inequality: evidence from Denmark

Torben M. Andersen, Joydeep Bhattacharya, Anna Grodecka-Messi and Katja Mann ()
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Torben M. Andersen: University of Aarhus
Katja Mann: Copenhagen Business School

No 411, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: A growing literature explores reasons for rising wealth inequality, but disregards the role of pension systems despite their well-understood influence on life-cycle saving. In theory and according to available evidence, both pay-as-you-go (PAYG) and fully-funded (FF) pension schemes crowd out voluntary retirement saving. They differ because aggregate savings decrease in the former but increase under the latter system. Unlike most nations, Denmark has seen a decline in wealth inequality in recent decades. This paper studies a calibrated life-cycle model of Denmark and employs unique registry data to argue that a Danish pension system transition, from a mostly PAYG to a dominant, mandated FF scheme, explains much of this decline.

Keywords: Wealth inequality; pension systems; crowding out; life-cycle savings (search for similar items in EconPapers)
JEL-codes: D31 E01 E21 G51 H55 J32 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2022-02-01
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge and nep-mac
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