Pension Reform, Factor Mobility and Trade with Country-Specific Goods
- 157 Downloads
This paper studies the effects of pension reform in a two-country model with country-specific goods. It shows that in the case of dynamic efficiency, a switch from a pay-as-you-go to a more-funded pension scheme leads to an inflow of labour to the reforming country. Reallocation of capital depends on the degree of substitutability between goods produced in the countries. If the goods produced in the countries are substitutes (complements), capital stock grows (declines) in the reformed country relative to the neighbouring country. Social security reform makes goods produced in the reformed country cheaper; this has an additional negative effect on the old generation in the reformed country, but compensates the old generation in the neighbouring country with cheaper imports due to a reduction in the tax base arising from emigration.
KeywordsPension reform Mobile production factors International trade Elasticity of substitution Race to the bottom Spillovers
JEL ClassificationF21 F22 H55
- Adema, Y., Meijdam, A. C., & Verbon, H. A. A. (2009). The international spillover effects of pension reform. International Tax and Public Finance, 16, 670–696.Google Scholar
- Amdur, D. (2010). International cross-holdings of bonds in a two-good DSGE model. Economics Letters, 108, 163–166.Google Scholar
- Breyer, F. (1989). On the intergenerational Pareto efficiency of pay-as-you-go financed pension systems. Journal of Institutional and Theoretical Economics, 145, 643–658.Google Scholar
- Buškutė, I., & Medaiskis, T. (2011). Balancing the security and affordability of funded pension schemes: Statements an.d comments. Paper presented at the Peer Review of the Netherlands’ Pension System. Hague, April 12–13Google Scholar
- Fedotenkov, I., & Meijdam, L. (2013a). Crisis and pension system design in the EU: Intergenerational redistribution and international spillover effects via factor mobility and trade. De Economist, 161(2), 175–197.Google Scholar
- Fedotenkov, I., & Meijdam, L. (2013b). Pension reform with migration and mobile capital: Is a Pareto improvement possible? International Economics and Economic Policy. doi: 10.1007/s10368-013-0259-2.
- Fedotenkov, I., van Groezen, B., & Meijdam, L. (2014). Demographic change, international trade and capital flows. Open Economies Review. doi: 10.1007/s11079-014-9311-2.
- Fehr, H., Jokisch, S., & Kotlikoff, S. (2003). The developed world’s demographic transition: The roles of capital flows, immigration and policy. NBER working paper series. Working paper no. 10096.Google Scholar
- Palacios, R., & Palarès-Miralles, M. (2000). International patters of pension provisions. Social protection discussion paper series no. 0009, The World Bank, Washington, DCGoogle Scholar
- Razin, A., & Sadka, E. (1992). International migration and international trade. NBER working paper series. Working paper no. 4230.Google Scholar
- Razin, A., & Sadka, E. (2010). Fiscal and migration competition. CESIFO working paper no. 3075.Google Scholar
- Vasile, V., & Zaman, G. (2005). Romania’s pension system; between present restrictions and future exigencies. PIE Discussion paper series.Google Scholar
- Verbon, H. A. (1989). Conversion policies for public pensions plans in a small open economy. In Gustafsson, B., & Klevmarken, N. (eds.) The political economy of social security. Elsevier Science, Amsterdam.Google Scholar