Swiss Journal of Economics and Statistics

, Volume 147, Issue 2, pp 181–231 | Cite as

Aging and the financing of social security in Switzerland

  • Christian Keuschnigg
  • Mirela Keuschnigg
  • Christian Jaag
Open Access


The gains in life expectancy are expected to double the dependency ratio and increase population by 10% in Switzerland until 2050. To quantify the effects on social security and public finances, we use an overlapping generations model with five margins of labor supply: labor market participation, hours worked, job search, retirement, and on-the-job training. A passive fiscal strategy would be very costly. A comprehensive reform, including an increase in the retirement age to 68 years, may limit the tax increases to 4 percentage points of value added tax and reduce the decline of per capita income to less than 6%.


D58 D91 H55 J26 J64 


aging social security retirement human capital unemployment 


  1. Abrahamsen, Yngve, and Jochen Hartwig (2003), Volkswirtschaftliche Auswirkungen verschiedener Demographieszenarien und Varianten zur langfristigen Finanzierung der Alterssicherung in der Schweiz, Forschungsbericht Nr. 12/03.Google Scholar
  2. Altig, David, and Charles T. Carlstrom (1999), “Marginal Tax Rates and Income Inequality in a Life-Cycle Model”, American Economic Review, 89, pp. 1197–1215.CrossRefGoogle Scholar
  3. Altig, David, Alan J. Auerbach, Laurence J. Kotlikoff, Kent A. Smetters and Jan Walliser (2001), “Simulating Fundamental Tax Reform in the United States”, American Economic Review, 91, pp. 574–595.CrossRefGoogle Scholar
  4. Atkinson, Anthony, and John Micklewright (1991), “Unemployment Compensation and Labor Market Transitions: A Critical Review”, Journal of Economic Literature, 29, pp. 1679–1727.Google Scholar
  5. Belot, Michele, and Jan van Ours (2001), “Unemployment and Labor Market Institutions: An Empirical Analysis”, Journal of the Japanese and International Economies, 15, pp. 403–418.CrossRefGoogle Scholar
  6. Blanchard, Olivier J. (1985), “Debt, Deficits and Finite Horizons”, Journal of Political Economy, 93, pp. 223–247.CrossRefGoogle Scholar
  7. Blanchard, Olivier J., and Justin Wolfers (2000), “The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence”, Economic Journal, 110, pp. 1–33.CrossRefGoogle Scholar
  8. Blundell, Richard (1995), “The Impact of Taxation on Labor Force Participation and Labor Supply”, in: OECD Job Study: Taxation, Employment, and Unemployment, Paris.Google Scholar
  9. Blundell, Richard, and Thomas MaCurdy (1999), “Labor Supply: A Review of Alternative Approaches”, in: O. Ashenfelter and D. Card (eds), Handbook of Labor Economics, Vol. 3A, New York.Google Scholar
  10. Börsch-Supan, Axel (2000), “Incentive Effects of Social Security on Labor Force Participation: Evidence in Germany and Across Europe”, Journal of Public Economics, 78, pp. 25–49.CrossRefGoogle Scholar
  11. Börsch-Supan, Axel, and Joachim K. Winter (2001), “Population Aging, Savings Behavior, and Capital Markets”, NBER Working Paper 8561.Google Scholar
  12. Bovenberg, Lans A. (2003), “Financing Retirement in the European Union”, International Tax and Public Finance, 10, pp. 713–734.CrossRefGoogle Scholar
  13. Bovenberg, Lans A., and Thijs Knaap (2005), “Ageing, Funded Pensions and the Dutch Economy”, CESifo Working Paper 1403.Google Scholar
  14. Bundesamt für Statistik (2006), Szenarien zur Bevölkerungsentwicklung in der Schweiz.Google Scholar
  15. Bundesrat (2008), Bericht des Bundesrats über seine Geschäftsführung 2007.Google Scholar
  16. Bütler, Monika (2009), “Switzerland: High Replacement Rates and Generous Subsistence as a Barrier to Work in Old Age”, Geneva Papers on Risk and Insurance, 34, pp. 561–577.CrossRefGoogle Scholar
  17. Bütler, Monika, Olivia Huguenin and Federica Teppa (2004), “What Triggers Early Retirement? Results from Swiss Pension Funds”, CEPR Discussion Paper 4394.Google Scholar
  18. Crémer, Helmuth, and Pierre Pestieau (2003), “The Double Dividend of Postponing Retirement”, International Tax and Public Finance, 10, pp. 419–434.CrossRefGoogle Scholar
  19. Diamond, Peter A. (2004), “Social Security”, American Economic Review, 94, pp. 1–24.CrossRefGoogle Scholar
  20. Diamond, Peter A., and Peter R. Orszag (2005), “Saving Social Security”, Journal of Economic Perspectives, 19, pp. 11–32.CrossRefGoogle Scholar
  21. Disney, Richard (2004), “Are Contributions to Public Pension Programmes a Tax on Employment?”, Economic Policy, 39, pp. 269–311.Google Scholar
  22. Dorn, David, and Alfonso Sousa-Poza (2010), “Voluntary and Involuntary Early Retirement: An International Analysis”, Applied Economics, 42, pp. 427–438.CrossRefGoogle Scholar
  23. Eissa, Nada, and Hilary W. Hoynes (2004), “Taxes and the Labor Market Participation of Married Couples: the Earned Income Tax Credit”, Journal of Public Economics, 88, pp. 1931–1958.CrossRefGoogle Scholar
  24. Farmer, Roger E.A. (1990), “Rince Preferences”, Quarterly Journal of Economics, 105, pp. 43–60.CrossRefGoogle Scholar
  25. Feldstein, Martin (2005a), “Rethinking Social Insurance”, American Economic Review, 95, pp. 1–24.CrossRefGoogle Scholar
  26. Feldstein, Martin (2005b), “Structural Reform of Social Security”, Journal of Economic Perspectives, 19, pp. 33–55.CrossRefGoogle Scholar
  27. Feldstein, Martin and Jeffrey B. Liebman (2002), “Social Security”, in: A. J. Auerbach, M. Feldstein (ed.), Handbook of Public Economics, Vol. 4, Amsterdam, pp. 2245–2324.Google Scholar
  28. Feldstein, Martin, and Andrew Samwick (1992), “Social Security Rules and Marginal Tax Rates”, National Tax Journal, 45, pp. 1–22.Google Scholar
  29. Feldstein, Martin, and Andrew Samwick (2002), Potential Paths of Social Security Reform, Cambridge, pp. 181–224.Google Scholar
  30. Fence, Robert, and Pierre Pestieau (2005), Social Security and Early Retirement, Cambridge.Google Scholar
  31. Fisher, Walter. H., and Christian Keuschnigg (2010), “Pension Reform and Labor Market Incentives”, Journal of Population Economics, 23, pp. 769–803.CrossRefGoogle Scholar
  32. Fouarge, Didier, and Trudie Schils (2009), “The Effect of Early Retirement Incentives on the Training Participation of Older Workers”, LABOUR, 23, pp. 85–109.CrossRefGoogle Scholar
  33. Gerfin, Michael, and Michael Lechner (2002), “A Microeconometric Evaluation of the Active Labour Market Policy in Switzerland”, Economic Journal, 112, pp. 854–893.CrossRefGoogle Scholar
  34. Gerfin, Michael, Michael Lechner and Heidi Steiger (2005), “Does Subsidised Temporary Employment Get the Unemployed Back to Work? An Econometric Analysis of Two Different Schemes”, Labour Economics, 12, pp. 807–835.CrossRefGoogle Scholar
  35. Gertler, Mark (1999), “Government Debt and Social Security in a Life-Cycle Economy”, Carnegie-Rochester Conference Series on Public Policy, 50, pp. 61–110.CrossRefGoogle Scholar
  36. Görlitz, Katja (2009), “The Effect of Subsidizing Continuous Training Investments - Evidence from German Establishment Data”, Ruhr Economic Papers 144.Google Scholar
  37. Grafenhofer, Dominik, Christian Jaag, Christian Keuschnigg and Mírela Keuschnigg (2007), “Economic Ageing and Demographic Change”. Vienna Yearbook of Population Research 2007, pp. 133–165.Google Scholar
  38. Gruber, Jonathan, and David A. Wise (1999), Social Security and Retirement Around the World, Chicago.Google Scholar
  39. Gruber, Jonathan, and David A. Wise (2004) (ed.), Social Security Programs and Retirement around the World: Micro-Estimation, Chicago.Google Scholar
  40. Gruber, Jonathan, and David A. Wise (2007), Social Security Programs and Retirement Around the World: Fiscal Implications, Chicago.Google Scholar
  41. Immervoll, Herwig, Henrik J. Kleven, Claus T Kreiner and Emmanuel Saez (2007), “Welfare Reform in European Countries: A Microsimulation Analysis”, Economic Journal, 117, pp. 1–44.CrossRefGoogle Scholar
  42. Jaag, Christian (2009), “Education, Demographics, and the Economy”, Journal of Pension Economics and Finance, 8, pp. 189–223.CrossRefGoogle Scholar
  43. Jaag, Christian, Christian Keuschnigg and Mírela Keuschnigg (2010), “Pension Reform, Retirement and Life-Cycle Unemployment”, International Tax and Public Finance, 17 (5), pp. 556–585.CrossRefGoogle Scholar
  44. Kalemli-Ozcan, Sebnem (2002), “Does the Mortality Decline Promote Economic Growth?”, Journal of Economic Growth, 7, pp. 411–439.CrossRefGoogle Scholar
  45. Kane, Thomas (2006), “Public Intervention and Post-Secondary Education”, in: E. Hanushek and F. Welch (ed.), Handbook of the Economics of Education, Amsterdam.Google Scholar
  46. Keuschnigg, Christian, and Mirela Keuschnigg (2004), “Aging, Labor Markets and Pension Reform in Austria”, Finanzarchiv, 60, pp. 359–392.CrossRefGoogle Scholar
  47. Keuschnigg, Christian, and Mirela Keuschnigg (2010), “Training, Life-Cycle Unemployment, and Retirement: Technical Appendix”, Universität St. Gallen, unpublished manuscript.Google Scholar
  48. Keuschnigg, Christian, Mirela Keuschnigg and Christian Jaag (2010), “Aging and the Financing of Social Security in Switzerland: An Analytical Note”, Universität St. Gallen, unpublished manuscript.Google Scholar
  49. Kotlikoff, Laurence J. (1997), “Privatizing Social Security in the United States: Why and How”, in: A. J. Auerbach (ed.), Fiscal Policy. Lessons from Economic Research, Cambridge, pp. 213–248.Google Scholar
  50. Krueger, Alan, and Bruce Meyer (2002), “Labor Supply Effects of Social Insurance”, in: A. Auerbach and M. Feldstein (ed.), Handbook of Public Economics, Vol. 4, Amsterdam, pp. 2327–2392.CrossRefGoogle Scholar
  51. Lau, Morten, and Panu Poutvaara (2006), “Social Security Incentives and Human Capital Investment”, Finnish Economic Papers, 19, pp. 16–24.Google Scholar
  52. Layard, Richard, Stephen Nickell and Richard Jackman (1991), Unemployment, London.Google Scholar
  53. Lieb, Christoph, Andre Müller and Renger van Nieuwkoop (2003), Analyse der Finanzierungsquellen für die AHVSWISSOLG — Ein Overlapping Generations Model für die Schweiz, Forschungsbericht Nr. 11/03.Google Scholar
  54. Lindbeck, Assar, and Mats Persson (2003), “The Gains from Pension Reform”, Journal of Economic Literature, 41, pp. 74–112.CrossRefGoogle Scholar
  55. Meghir, Costas, and David Phillips (2008), “Labor Supply and Taxes”, IFS Working Paper 08/04.Google Scholar
  56. Messer, Dolores, and Stefan Wolter (2009), “Money Matters — Evidence from a Large-Scale Randomized Field Experiment with Vouchers for Adult Training”, CESifo Working Paper 2548.Google Scholar
  57. Miles, David (1999), “Modelling the Impact of Demographic Change Upon the Economy”, Economic Journal, 109, pp. 1–36.CrossRefGoogle Scholar
  58. Mitchell, Olivia S., and John W Phillips (2000), “Retirement Responses to Early Social Security Benefit Reductions”, NBER Working Paper 7963.Google Scholar
  59. Nickel, Stephen (1997), “Unemployment and Labor Market Rigidities: Europe versus North America”, Journal of Economic Perspectives, 3, pp. 55–74.CrossRefGoogle Scholar
  60. Queisser, Monika, and Edward Whitehouse (2006), “Neutral or Fair? Actuarial Concepts and Pension-System Design”, OECD Social, Employment and Migration WP No. 40.Google Scholar
  61. Queisser, Monika, and Dimitri Vittas (2000), “The Swiss Multi-Pillar Pension System: Triumph of Common Sense?”, Policy Research Working Paper 2416, The World Bank.Google Scholar
  62. Scarpetta, Stefano (1996), “Assessing the Role of Labour Market Policies and Institutional Settings on Unemployment: A Cross-Country Study”, OECD Economic Studies, 26, pp. 43–98.Google Scholar
  63. Soares, Rodrigo R. (2005), “Mortality Reductions, Educational Attainment, and Fertility Choice”, American Economic Review, 95, pp. 580–601.CrossRefGoogle Scholar
  64. Weil, Philippe (1990), “Nonexpected Utility in Macroeconomics”, The Quarterly Journal of Economics, Vol. 105, No. 1, pp. 29–42.CrossRefGoogle Scholar
  65. Weil, David N. (2006), “Population Aging”, NBER Working Paper 12147.Google Scholar

Copyright information

© Swiss Society of Economics and Statistics 2011

Authors and Affiliations

  • Christian Keuschnigg
    • 1
  • Mirela Keuschnigg
    • 1
  • Christian Jaag
    • 2
  1. 1.CEPR, CESifo and NetSparUniversity of St. Gallen (FGN-HSG)Switzerland
  2. 2.Swiss EconomicsSwitzerland

Personalised recommendations