Download to read offline
Uploaded byGRAPE
Goraus eea
The document analyzes the macroeconomic and welfare implications of increasing retirement age within different pension systems in Poland, specifically comparing defined benefit (DB), notional defined contribution (NDC), and fully funded defined contribution (FDC) schemes. It uses an OLG model to simulate the effects of pension system reforms on labor supply, consumption, and welfare, concluding that extending the retirement age generally improves welfare, particularly when productivity increases with age. The results highlight the importance of structural adjustments in labor supply and overall economic implications of pension reforms.
More Related Content
Goraus eea
- 1. Does social securityreform reduce gains from higher retirement age? Does social security reform reduce gains from higher retirement age? (with Joanna Tyrowicz and Krzysztof Makarski) Karolina Goraus PhD Candidate University of Warsaw EEA-ESEM Congress 28 August 2014
- 2. Does social securityreform reduce gains from higher retirement age? Table of contents 1 Motivation and insights from literature 2 Model setup 3 Calibration 4 Baseline and reform scenarios 5 Results Welfare Macroeconomic eects
- 3. Does social securityreform reduce gains from higher retirement age? Motivation and insights from literature Broad picture A scienti
- 4. c project atthe University of Warsaw OLG modeling of the pension system reform in Poland Polish pension reform of 1999 the original system was a DB PAYG scheme then introduction of a three pillar system 1 notional de
- 5. ned contribution (NDC)scheme ) managed by Social Insurance Fund (SIF) 2 fully funded DC (FDC) scheme ) managed by Open Pension Funds (OPFs) 3 voluntary pension schemes
- 6. Does social securityreform reduce gains from higher retirement age? Motivation and insights from literature Motivation Current problems with pension systems: increasing old-age dependency ratio majority of pension systems fail to assure actuarial fairness in most countries people tend to retire as early as legally allowed Typical reform proposals switching to individual accounts' systems raising the social security contributions per worker introducing general
- 7. scal contraction increasingminimum eligibility retirement age (MERA)
- 8. Does social securityreform reduce gains from higher retirement age? Motivation and insights from literature Literature review Two streams of literature: 1 Answering the question about optimal retirement age (Gruber and Wise (2007), Galasso (2008), Heijdra and Romp (2009)) 2 Comparing dierent pensions system reforms: increasing retirement age vs. cut in bene
- 9. ts/privatization of thesystem/... (Auerbach et al. (1989), Hviding and Marette (1998), Fehr (2000), Boersch-Supan and Ludwig (2010), Vogel et al. (2012)) Fehr (2000) Macroeconomic eects of retirement age increase may depend on the existing relation between contributions and bene
- 10. ts Remaining gapsin the literature We increase retirement age... how the macroeconomic eects dier between various pension systems? what happens to the welfare of dierent generations?
- 11. Does social securityreform reduce gains from higher retirement age? Motivation and insights from literature Goals and expectations Goal Analyse macroeconomic and welfare implications of retirement age increase under DB (de
- 12.
- 13.
- 14. ned contribution), andFDC (partially funded de
- 15. ned contribution) systems Tool OLG model with
- 16. rst steady statecalibrated to re ect Polish economy in 1999 Expectations under DB: leisure #, taxes #, welfare? under NDC: leisure #, pensions , welfare? under FDC: leisure #, pensions , welfare? What else makes the results less predictable? ! Labor supply adjustments, general equilibrium eects...
- 17. Does social securityreform reduce gains from higher retirement age? Model setup 1 Motivation and insights from literature 2 Model setup 3 Calibration 4 Baseline and reform scenarios 5 Results Welfare Macroeconomic eects
- 18. Does social securityreform reduce gains from higher retirement age? Model setup Model structure - consumer I is born at age J = 20 and lives up to J = 100 optimizes lifetime utility derived from leisure and consumption: U0 = XJ j=1 j1j;t1+juj (cj;t1+j ; lj;t1+j ) (1) where is the time discounting factor and j;t denotes the unconditional probability of a household of having survived from birth to age j at time period t (accidental bequests are spreaded equally to all cohorts). The instantaneous utility function: u(c; l) = log(c) + (1 ) log(1 l ), (2)
- 19. Does social securityreform reduce gains from higher retirement age? Model setup Model structure - consumer II is paid a market clearing wage for labour supplied and receives market clearing interest on private savings is free to choose how much to work, but only until retirement age J (forced to retire) The budget constraint of agent j in period t is given by: (1 + c;t )cj;t + sj;t + t = (1 l;t)(1 j;t )wj;t lj;t labor income (3) + (1 + rt(1 k;t ))sj;t1 capital income + (1 l;t )pj;t + bj;t pensions and bequests
- 20. Does social securityreform reduce gains from higher retirement age? Model setup Model structure - producer Firms solve the following problem: max (Yt ;Kt ;Lt ) Yt wtLt (r k t + d)Kt (4) t (ztLt )1 s.t. Yt = K Standard
- 21. rm optimization implies: t (ztLt ) (there might be the average market wage wt = (1 )K heterogeneity between cohorts due to age-speci
- 22. c productivity, wj;t= !jwt ) interest rate r k t (ztLt )1 d, where d stands for depreciation t = K1
- 23. Does social securityreform reduce gains from higher retirement age? Model setup Model structure - government collects social security contributions and pays out pensions of DB and NDC system subsidyt = t wtLt XJ j= J pj;tj;tNtj (5) collects taxes on earnings, interest and consumption + spends GDP
- 24. xed amount ofmoney on unproductive (but necessary) activities + services debt Tt = l;t (1 t )wtLt + XJ j= Jt p j;tj;tNtj + c;tct +k;t rt sj;t1 XJ j=1 j;tNtj : (6) Gt + subsidy t + rtDt1 = Tt + (Dt Dt1) + t XJ j=1 j;tNtj : (7) wants to maintain long run debt/GDP ratio
- 25.
- 26. Does social securityreform reduce gains from higher retirement age? Calibration 1 Motivation and insights from literature 2 Model setup 3 Calibration 4 Baseline and reform scenarios 5 Results Welfare Macroeconomic eects
- 27. Does social securityreform reduce gains from higher retirement age? Calibration Calibration to replicate 1999 economy Preference for leisure () chosen to match participation rate of 56.8% Impatience () chosen to match interest rate of 7.4% Replacement rate () chosen to match bene
- 28. ts/GDP ratio of5% Contributions rate ( ) chosen to match SIF de
- 29. cit/GDP ratio of0.8% Labor income tax (l ) set to 11% to match PIT/GDP ratio Consumption tax (l ) set to match VAT/GDP ratio Capital tax set de iure = de facto
- 30. Does social securityreform reduce gains from higher retirement age? Calibration Age-productivity pro
- 31. le - ator ...?
- 32. Does social securityreform reduce gains from higher retirement age? Calibration Final parameters Table: Calibrated parameters Age-productivity pro