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A Tradeoff between the Output and Net Foreign Asset Effects of Pension Reform

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  • Mario Catalán

    (International Monetary Fund)

  • Nicolas E. Magud

    (International Monetary Fund)

Abstract

We use an overlapping generations model of a small open economy with perfect capital mobility to evaluate the long-term effects of pension reforms on output and net foreign assets. We compare reforms that achieve similar fiscal targets and show the existence of a tradeoff. Reforms that increase the retirement age have an expansionary effect on output, but a small (and oftentimes) negative effect on the net foreign asset position. In contrast, reforms that cut pension benefits improve the net foreign asset position but reduce output. Only mixed reforms that increase the retirement age and cut pension benefits sufficiently can boost both output and net foreign assets.

Suggested Citation

  • Mario Catalán & Nicolas E. Magud, 2017. "A Tradeoff between the Output and Net Foreign Asset Effects of Pension Reform," Open Economies Review, Springer, vol. 28(4), pages 685-709, September.
    • Handle: RePEc:kap:openec:v:28:y:2017:i:4:d:10.1007_s11079-016-9429-5
    DOI: 10.1007/s11079-016-9429-5
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    Cited by:

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    2. Julian A. Parra-Polania & Fernando Arias Rodríguez & Jesus Bejarano & Martha López & Juan J. Ospina-Tejeiro & Julio E. Romero-Prieto & Eduardo Sarmiento Gómez, 2020. "Sistema pensional colombiano: descripción, tendencias demográficas y análisis macroeconómico," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 96, pages 1-64, September.

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    More about this item

    Keywords

    F41; H55;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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