Sustainability of pension reforms: An EU-wide political stress test
(2023) , 26 pages
Files
CORE_DP_2023-16.pdf
Open Access - Adobe PDF
- 1.56 MB
Details
- Authors
- Abstract
- Many countries have adopted various pension reforms to deal with aging population. Those reforms involve some balance between ”refinancing” (contribution increase) and ”retrenchment” (benefit cut). The question we address is whether policymakers have the future capacity to sustain the legislated pension reforms in the EU given the growing influence of the elderly in the democratic process. To answer this question, we draw on the 2021 Economic Policy Committee (EPC) projections of pension benefit rates that we compare with the policy adjustments over the amount of refinancing and benefit cut arising from continuously negotiated reforms over time between the successive cohorts of workers and retirees. We compute the optimal bargaining trajectory of benefit and contribution rates that match the aging population. We then use the ”democratic gap” as a political stress test. This democratic gap measures how the implicit bargaining power that rationalizes the projected pension benefits deviates from the population shares. We complement the analysis with the ”benefit gap” that measures how the projected pension benefits deviate from the bargaining outcome when bargaining power evolves according to population aging.
- Affiliations
Citations
Cetin, S., & Hindriks, J. (2023). Sustainability of pension reforms: An EU-wide political stress test (LIDAM Discussion Paper CORE 2023/16). https://hdl.handle.net/2078.5/273330