Retirement Policies, Sustainability and Inequality: a Comprehensive Framework
Today, pension systems must deal with two open problems: their financial sustainability while facing both worldwide population aging and diffuse public finance distress; and their relationship with within- and between-generation rising inequality. These concerns are calling for structural reforms in many countries. We propose a new theoretical model to study the trade-offs entailed by all the possible combinations of retirement schemes (funded vs. unfunded and defined benefit vs. defined contribution) with respect to both sustainability and inequality. Calibrating this model on different European economies (Germany, UK, France, Netherlands and Italy) allows us to characterize the optimal mixture of different schemes given a government’s redistribution preferences, therefore comparing countries and systems. Moreover, we plan to build a new historical database of pension reforms in those countries. Using this data and our model, we perform an inverse optimum analysis to assess the implicit welfare weights that have been attached by retirement policies to different generations over the last decades.
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