Aging population and public pensions: theory and evidence

Miroslav Verbič and Rok Spruk

MPRA Paper from University Library of Munich, Germany

Abstract: Rapidly aging population in high-income countries has exerted additional pressure on the sustainability of public pension expenditure. We present a formal model of public pension expenditure under endogenous human capital, where the latter facilitates a substantial decrease in equilibrium fertility rate alongside the improvement in life expectancy. We demonstrate how higher life expectancy and human capital endowment facilitate the rise of net replacement rate. We provide and examine an empirical model of old-age expenditure in a panel of 33 countries in the period 1998–2008. Our results indicate that increases in total fertility rate and effective retirement age would reduce age-related expenditure substantially. While higher net replacement rate would alleviate the risk of old-age poverty, it would endanger long-term sustainability of public finance by imposing additional pressure on deficit and public debt.

Keywords: public pensions; aging; social security; replacement rate; life expectancy (search for similar items in EconPapers)
JEL-codes: C51 H55 J11 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-age, nep-dem and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38914

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