Abstract
For those coming to the pension reform debate for the first time the terminology used can often appear a little confused, with Table 1 below attempting to isolate the key issues and concepts which need to be kept in mind by the reader.
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Feldstein and Liebman (2001) “.....the existence of a capital stock implies that individuals could instead (of PAYG) finance their retirement by saving and investing in actual capital goods where they would earn a real return of p. In a dynamically efficient economy, the real rate of return p must exceed the rate of growth of the economy, y (Cass, 1965). Thus each working generation incurs a loss because it receives a return y on its Social Security taxes that is less than the return p that it would earn by investing those funds in the capital stock”
Pension expenditure figures are taken from OECD sources due to the fact that a longer time series is available. The figure of 12% for 2000 for the EU is however in keeping with the roughly equivalent figures from Eurostat’s ESSPROS database for the late 1990’s. It is important to stress that due to different definitions and concepts used there are sometimes large discrepancies between different published sources, with for example the EPC’s Ageing Working Group estimating that pension expenditure in the EU in 2000 was of the order of 101/2% of GDP.
This figure of 20% assumes that the starting point for pension expenditure as a % of GDP is the OECD figure of 12% in 2000 and not the 10 1/2% of GDP assumed by the EPC.
While a large array of factors have been put forward as possible explanations for this break in trend, the growing use of the contraceptive pill was undoubtedly one of the contributory elements.
The 1995 generosity levels are simply extrapolated forward to 2000 to allow a comparison for all three sets of variables (demographic, labour and generosity) over the full 40 year period 1960–2000.
Note: This figure for 2000 of 19% is taken from OECD sources and is higher than the figure of 16% used in the simulations in Section 2. The reason for the difference is explained by the fact that the model used for the simulations is calibrated on the EPC pension expenditure figure of 10 1/2% of GDP in 2000 whereas this figure of 19% is based on the higher OECD estimate for pension expenditure of 12%.
This breakdown between PAYG and funding only refers to the EU average with big variations in the respective shares of the individual EU countries.
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© 2004 Springer-Verlag Berlin Heidelberg
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Mc Morrow, K., Roeger, W. (2004). Overview of the Pension Reform Debate. In: Welfens, P.J.J. (eds) The Economic and Financial Market Consequences of Global Ageing. European and Transatlantic Studies. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-24821-7_6
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DOI: https://doi.org/10.1007/978-3-540-24821-7_6
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