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Pension systems and the current account: An empirical exploration

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  • Koomen, Miriam
  • Wicht, Laurence

Abstract

This paper empirically investigates the role of pension systems in driving current account balances. We construct three indicators—a system’s type of funding, generosity, and coverage—to measure pension systems. Using a panel of 49 countries that spans over 30 years, we find that the presence of a fully-funded system is associated with a higher current account balance. Further, we find that this effect increases with the system’s generosity and coverage. In contrast, we find no significant correlation between pay-as-you-go systems and current account balances. By accounting for pension indicators, we are able to explain a significant share of the increase in current account surpluses in advanced economies over the past two decades.

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  • Koomen, Miriam & Wicht, Laurence, 2022. "Pension systems and the current account: An empirical exploration," Journal of International Money and Finance, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:jimfin:v:120:y:2022:i:c:s0261560621001716
    DOI: 10.1016/j.jimonfin.2021.102520
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    2. Gian Maria Milesi-Ferretti, 2024. "Many Creditors, One Large Debtor: Understanding the Buildup of Global Stock Imbalances After the Global Financial Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 509-553, June.
    3. Miriam Koomen & Laurence Wicht, 2023. "Demographics and Current Account Imbalances: Accounting for the Full Age Distribution," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(3), pages 719-758, September.

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    More about this item

    Keywords

    EBA model; Current account; Saving-investment balance; Fully-funded system; Pay-as-you-go system;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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