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Macroeconomic and Welfare Effects of Parametric Pension Reform in Iran

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  • Sabzalizad Honarvar , Sonia

    (Alzahra University)

  • Raghfar , Hossein

    (Alzahra University)

  • Mousavi , Mirhossein

    (Alzahra University)

Abstract

The aim of this paper is to analyze the macroeconomic effects of parametric reforms. An adjusted Auerbach-Kotlikoff model is used to study the effects of decreasing replacement and contribution rates of the pension system. The first part concentrates on the macroeconomic effect of reforms. Our results indicate that reducing the replacement and contribution rates increase the capital stock and decrease the interest rates so the economy moves closer towards the golden rule. Under these parametric reforms, there is a long-run increase in capital stock, wages, labor supply, consumption and income of the future generations. We then measure the welfare effects of different generations and finally show how to use a Lump-Sum Redistribution Authority to calculate an aggregate efficiency measure of policy reforms. Our findings suggest an aggregate efficiency gain of 32.14 % (for replacement rate) and 4.04 % (for contribution rate) compared to the initial equilibrium.

Suggested Citation

  • Sabzalizad Honarvar , Sonia & Raghfar , Hossein & Mousavi , Mirhossein, 2017. "Macroeconomic and Welfare Effects of Parametric Pension Reform in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(4), pages 455-479, October.
    • Handle: RePEc:mbr:jmonec:v:12:y:2017:i:4:p:455-479
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    Cited by:

    1. Marcin Wroński, 2023. "The Displacement Effects of Social Security Wealth in a Transition Economy: The Case of Poland," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 19-40.

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    More about this item

    Keywords

    : Stochastic OLG Model; Pension Reforms; Welfare;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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