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The long run influence of pension systems on the current account

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  • Davoine, Thomas

Abstract

Explaining cross-country differences in current accounts is difficult. While pay-as-you-go pensions reduce the need to save for retirement, contributions to capital-funded pensions are saved for future consumption. An overlapping-generations analysis shows that capital-funded pensions increase net foreign assets holdings. With a multi-pillar system whose capital-funded part accounts for 18% of pensions, the Austrian current account balance would be 1 percentage point of gross domestic product (GDP) higher than with pure pay-as-you-go pensions in 20 years. By comparison, the Austrian current account surplus averages 1.8% of GDP. Empirically, I find that the current account of high-income countries increases with the coverage and replacement rates of capital-funded pensions.

Suggested Citation

  • Davoine, Thomas, 2021. "The long run influence of pension systems on the current account," Journal of Pension Economics and Finance, Cambridge University Press, vol. 20(1), pages 67-101, January.
    • Handle: RePEc:cup:jpenef:v:20:y:2021:i:1:p:67-101_5
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    Cited by:

    1. Dr. Miriam Koomen & Dr. Laurence Wicht, 2020. "Demographics, pension systems, and the current account: an empirical assessment using the IMF current account model," Working Papers 2020-23, Swiss National Bank.

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