- Part of this sub-project is a review of the international literature. The literature review yields a number of interesting findings such as that GDP is a non-stationary process, that total factor productivity is uncorrelated with the age structure of the population and that there is only weak empirical evidence for a relation between age structure and the equity premium.
Subproject 2: Pension system and risk sharing between generations
- Research on the gains from optimal intergenerational risk sharing has found that the first-best pension scheme may add between 4 and 19% of lifetime consumption on account of intergenerational risk sharing.
- Related is the important question whether the optimal pension scheme as would be chosen by a social planner can be reproduced. Our analyses show that this may be difficult in an international setting; in a national setting, it may be impossible if labour supply distortions are in place.
Sub project 3: Risk sharing in pension schemes in the presence of economic and demographic risks: applied stochastic modelling
- Research on the trade-off between the welfare gains from risk sharing and the welfare losses of labour market distortions shows that for the case of a unitary elasticity of labour supply, the welfare gains from risk sharing dominate the welfare losses from labour market distortions.
- Pension schemes may also be welfare-increasing for another reason, due to the fact that they act as a commitment device. Our research finding is that this is true for preference structures that are considered realistic.
Sub project 4: International spillovers from monetary, pension and retirement policies
- Research on the international dimension of pension reform shows that the benefits and costs caused by a switch from a PAYG to a more funded pension scheme in one country are mostly, but not always shared by the neighbouring country.
Sub project 5: Pension reforms, income distribution and the labor market
- Research on retirement shows that the early retirement provision in most pension systems acts as a trap, inducing most workers to retire well before the normal retirement age. Simulations with a macroeconomic model show that pension reform must be drastic for it to have any effects on the retirement behaviour of workers.
Sub project 6: Economic effects of the supervisory framework for pension funds
- A finding in this sub-project is that it may be possible to construct a second-best pension scheme that combines intergenerational risk sharing with zero discontinuity risk (the risk that young generations choose to opt out of the scheme), if a sufficiently high difference between the returns on private and pension saving is assumed.
Update February 19, 2008