Switching to Full Wage Indexing of Earnings Related Pension Benefits Would Be Costly

Jukka Lassila, Niku Määttänen and Tarmo Valkonen

No 51, ETLA Brief from The Research Institute of the Finnish Economy

Abstract: Abstract A recent citizens’ initiative calls for a switch from indexing pension benefits to consumer prices (80%) and wages (20%) to full wage indexation. Such a reform could increase private consumption and government tax revenue in the short run. This is especially the case if the increase in pension expenditures is first financed by decumulating pension funds. In the long run, however, the reform would require a much higher contribution rate and result in lower private consumption compared to the current system. The reform would increase pension expenditures slowly but permanently. Therefore, it would be a very clumsy way of stimulating the economy. Possible stimulating effects would not suffice to finance the reform. The reform would benefit especially the cohorts that are about to retire when the reform is implemented. They would receive higher pension benefits throughout their retirement period, without paying higher contributions. All future cohorts would be worse off.

Pages: 8 pages
Date: 2016-12-08
New Economics Papers: this item is included in nep-age
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.etla.fi/wp-content/uploads/ETLA-Muistio-Brief-51.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rif:briefs:51

Ordering information: This working paper can be ordered from
https://www.etla.fi/ ... si-tulisi-kalliiksi/

Access Statistics for this paper

More papers in ETLA Brief from The Research Institute of the Finnish Economy Contact information at EDIRC.
Bibliographic data for series maintained by Kaija Hyvönen-Rajecki ().