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Complementary Funded Pensions And Economic Growth: Theoretical And Empirical Evidence Using An Overlapping Generations Model Applied To The Case Of Tunisia

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  • Houyem Chekki Cherni

Abstract

This paper presents a prospective analysis to guide effective pension reform. Using an overlapping generations model with differing returns on free savings and compulsory returns on funded pensions, we put into perspective the results largely supported in the economic literature that assume that replacing a pay-as-you-go pension scheme by funded plans boosts economic growth. We show that this reform is not necessarily synonymous with economic growth due to a crowding-out effect. Our contribution is not limited to theoretical results: we also assess the impacts empirically. Thus, we extend the theoretical model to take into account several periods and 55 generations. Simulation results, using a dynamic overlapping generations computable general equilibrium model calibrated for the Tunisian case, indicate that whether pension reform promotes capital accumulation and economic growth depends on the rate of return on funded pension savings relative to free savings.

Suggested Citation

  • Houyem Chekki Cherni, 2021. "Complementary Funded Pensions And Economic Growth: Theoretical And Empirical Evidence Using An Overlapping Generations Model Applied To The Case Of Tunisia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 66(231), pages 59-98, October –.
    • Handle: RePEc:beo:journl:v:66:y:2021:i:231:p:59-98
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    References listed on IDEAS

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    1. Tahar ABDESSALEM & Houyem CHEKKI CHERNI, 2016. "Tunisian Pension System Sustainability: Towards A Multidimensional Reform," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 44, pages 165-182.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Hans-Werner Sinn, 1999. "Pension Reform and Demographic Crisis: Why a Funded System is Needed and why it is not Needed," CESifo Working Paper Series 195, CESifo.
    4. Karni, Edi & Zilcha, Itzhak, 1989. "Aggregate and distributional effects of fair social security," Journal of Public Economics, Elsevier, vol. 40(1), pages 37-56, October.
    5. Tahar Abdessalem & Houyem Chekki Cherni, 2016. "Macroeconomic effects of pension reforms in the context of aging populations: overlapping generations model simulations for Tunisia," Middle East Development Journal, Taylor & Francis Journals, vol. 8(1), pages 84-108, January.
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    More about this item

    Keywords

    computable general equilibrium model; funded pension; overlapping generations; pay-as-you go pension system; financial markets; saving and capital investment; corporate finance and governance.;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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