Social Security Reform and Population Ageing in a Two-Sector Growth Model

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Abstract

This paper analyses the effects of reducing unfunded social security and population ageing on economic growth and welfare, both for a small open economy and for a closed economy.The economy consists of a service sector and a commodity sector.Productivity growth only occurs in the latter sector and is assumed to depend positively on its size.It is shown that if old agents mainly demand labour intensive services, a decrease of the pay-as-you-go (PAYG) pension scheme reduces long-run growth and thus welfare in a small open economy, whereas current generations are better off.However, reducing social security raises productivity growth in a closed economy, both in the short and long run. Furthermore, ageing will lead to a lower long-run rate of economic growth in a small open economy, whereas in the short run, the effects depend on the type of ageing and the size of the PAYG-scheme.In a closed economy, the effects of ageing depend on the substitutability of labour and capital.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages46
Volume2002-25
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-25

Fingerprint

Population aging
Social security reform
Two-sector growth model
Small open economy
Social security
Economic growth
Productivity growth
Short-run
Pay-as-you-go tax
Long-run growth
Substitutability
Pension scheme
Labour demand
Pay-as-you-go pension
Economic welfare
Commodities
Labor
Service sector

Keywords

  • economic growth
  • welfare
  • social security
  • pensions
  • privatization
  • ageing
  • population dynamics
  • overlapping generations

Cite this

van Groezen, B. J. A. M., Meijdam, A. C., & Verbon, H. A. A. (2002). Social Security Reform and Population Ageing in a Two-Sector Growth Model. (CentER Discussion Paper; Vol. 2002-25). Tilburg: Macroeconomics.
van Groezen, B.J.A.M. ; Meijdam, A.C. ; Verbon, H.A.A. / Social Security Reform and Population Ageing in a Two-Sector Growth Model. Tilburg : Macroeconomics, 2002. (CentER Discussion Paper).
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van Groezen, BJAM, Meijdam, AC & Verbon, HAA 2002 'Social Security Reform and Population Ageing in a Two-Sector Growth Model' CentER Discussion Paper, vol. 2002-25, Macroeconomics, Tilburg.

Social Security Reform and Population Ageing in a Two-Sector Growth Model. / van Groezen, B.J.A.M.; Meijdam, A.C.; Verbon, H.A.A.

Tilburg : Macroeconomics, 2002. (CentER Discussion Paper; Vol. 2002-25).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Social Security Reform and Population Ageing in a Two-Sector Growth Model

AU - van Groezen, B.J.A.M.

AU - Meijdam, A.C.

AU - Verbon, H.A.A.

N1 - Pagination: 46

PY - 2002

Y1 - 2002

N2 - This paper analyses the effects of reducing unfunded social security and population ageing on economic growth and welfare, both for a small open economy and for a closed economy.The economy consists of a service sector and a commodity sector.Productivity growth only occurs in the latter sector and is assumed to depend positively on its size.It is shown that if old agents mainly demand labour intensive services, a decrease of the pay-as-you-go (PAYG) pension scheme reduces long-run growth and thus welfare in a small open economy, whereas current generations are better off.However, reducing social security raises productivity growth in a closed economy, both in the short and long run. Furthermore, ageing will lead to a lower long-run rate of economic growth in a small open economy, whereas in the short run, the effects depend on the type of ageing and the size of the PAYG-scheme.In a closed economy, the effects of ageing depend on the substitutability of labour and capital.

AB - This paper analyses the effects of reducing unfunded social security and population ageing on economic growth and welfare, both for a small open economy and for a closed economy.The economy consists of a service sector and a commodity sector.Productivity growth only occurs in the latter sector and is assumed to depend positively on its size.It is shown that if old agents mainly demand labour intensive services, a decrease of the pay-as-you-go (PAYG) pension scheme reduces long-run growth and thus welfare in a small open economy, whereas current generations are better off.However, reducing social security raises productivity growth in a closed economy, both in the short and long run. Furthermore, ageing will lead to a lower long-run rate of economic growth in a small open economy, whereas in the short run, the effects depend on the type of ageing and the size of the PAYG-scheme.In a closed economy, the effects of ageing depend on the substitutability of labour and capital.

KW - economic growth

KW - welfare

KW - social security

KW - pensions

KW - privatization

KW - ageing

KW - population dynamics

KW - overlapping generations

M3 - Discussion paper

VL - 2002-25

T3 - CentER Discussion Paper

BT - Social Security Reform and Population Ageing in a Two-Sector Growth Model

PB - Macroeconomics

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ER -

van Groezen BJAM, Meijdam AC, Verbon HAA. Social Security Reform and Population Ageing in a Two-Sector Growth Model. Tilburg: Macroeconomics. 2002. (CentER Discussion Paper).