This paper shows that in a two-country two-overlapping-generations model with migration, capital mobility and an immobile production factor (land), a locally welfare-improving pension reform at the cost of the neighboring country is possible if land plays a minor role in production. Furthermore, differences in the size of the PAYG pension schemes between the countries distort the international allocation of labour and capital. As a result, a Pareto-improving pension reform is possible if countries employ PAYG pension schemes of different size, provided that a federal government exists that redistributes benefits and losses of the reform both intergenerationally and internationally.
|Journal||International Economics and Economic Policy|
|Early online date||27 Sept 2013|
|Publication status||Published - Sept 2014|