Macroeconomic Effects of Public Pension Reforms

Joana Pereira, Philippe Karam, Dirk Muir and Anita Tuladhar

No 2010/297, IMF Working Papers from International Monetary Fund

Abstract: The paper explores the macroeconomic effects of three public pension reforms, namely an increase in retirement age, a reduction in benefits and an increase in contribution rates. Using a five-region version of the IMF‘s Global Integrated Monetary and Fiscal model (GIMF), we find that public pension reforms can have a positive effect on growth in both the short run, propelled by rising consumption, and in the long run, due to lower government debt crowding in higher investment. We also find that a reform action undertaken cooperatively by all regions results in larger output effects, reflecting stronger capital accumulation due to higher world savings. An increase in the retirement age reform yields the strongest impact in the short run, due to the demand effects of higher labor income and in the long run because of supply effects.

Keywords: WP; real GDP; real interest rate; GDP; OLG models; Aging; Pension Reforms; Fiscal Adjustment; sensitivity analysis; contribution rate; demand decline; hike scenario; world real interest rate; replacement rate; GDP share; increase consumption; consumption behavior; real GDP in the United States; consumption rise; real GDP rise; Pension spending; Real interest rates; Pension reform; Pensions; Global; Asia and Pacific (search for similar items in EconPapers)
Pages: 63
Date: 2010-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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