A Tradeoff between the Output and Current Account Effects of Pension Reform

Mario Catalan and Nicolas Magud

No 2012/283, IMF Working Papers from International Monetary Fund

Abstract: We compare the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets. We show the presence of a policy trade-off. Pension reforms that increase the retirement age have a large positive effect on output, but a small (and often negative) effect on the current account. In contrast, reforms that cut pension benefits improve the current account balance but reduce output. Mixed pension reforms, which extend the working life and cut pension benefits, can simultaneously boost output and the current account.

Keywords: WP; current account; Pension reform; external balance; dyamic general equilibrium model; output-current account tradeoff; current account effect; investment position; saving decline; effects of pension reforms; aggregate flow constraint; return on assets; Pension spending; Pensions; Aging; policy trade-off; factor income (search for similar items in EconPapers)
Pages: 24
Date: 2012-12-03
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Citations: View citations in EconPapers (3)

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