Pension reform with migration and mobile capital: Is a pareto improvement possible?

This paper shows that in a two-country two-overlapping-generations model with migration, capital mobility and an immobile production factor (land), a locally welfare-improving pension reform at the cost of the neighboring country is possible if land plays a minor role in production. Furthermore, differences in the size of the PAYG pension schemes between the countries distort the international allocation of labour and capital. As a result, a Pareto-improving pension reform is possible if countries employ PAYG pension schemes of different size, provided that a federal government exists that redistributes benefits and losses of the reform both intergenerationally and internationally.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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