Demographic change and the rate of return in PAYG pension systems

Matthias Schön

No 57/2020, Discussion Papers from Deutsche Bundesbank

Abstract: The currently observed demographic change consists of two independent develop-ments that differ in structure and persistence: (1) A slow, monotonic and (presum-ably) permanent ageing effect caused by an increasing life expectancy; (2) a morerapidly changing, non-monotonic and less permanent cohort effect caused by fluc-tuations in the size of cohorts. This paper shows the ageing effect has a positiveimpact on the rates of return households generate within pay-as-you-go (PAYG) pension system. The cohort effect, by contrast, results in winners and losers in PAYG systems. Taking Germany as an example and using a quantitative OLG model the paper shows that the two effects cause rate of return differentials withinthe pension system of almost 1.3 percentage points between generations.

Keywords: Demographic Change; Pension System; OLG Models (search for similar items in EconPapers)
JEL-codes: E27 E62 H55 J11 J26 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:572020

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