Global demographic trends and social security reform

Orazio Attanasio, Sagiri Kitao, Giovanni L. Violante

Research output: Contribution to journalArticle

46 Citations (Scopus)

Abstract

How sustainable are the current social security systems in the developed economies, given the projected demographic trends? The most recent literature has answered this question through dynamic general-equilibrium models in a closed-economy framework. This paper provides a new quantitative benchmark of analysis for this question represented by a two-region model (South and North) of the world economy where capital flows across regions. The timing and the extent of the demographic transition-and the associated economic forces shaping capital accumulation and equilibrium factor prices-are very different in the two regions. Thus, the projected paths of interest rate and wage rate in the North diverge substantially between closed and open economy. We perform a wide range of policy experiments under both scenarios. Our main conclusion is that if one is interested in quantifying the path of the fiscal variables (e.g., the value of the payroll tax) needed to keep the social security system viable or to finance a transition towards a fully funded system, then these two benchmarks yield similar results. However, if the focus is on quantifying the path of factor prices, aggregate variables and, ultimately, welfare, then the two approaches can diverge significantly.

Original languageEnglish
Pages (from-to)144-198
Number of pages55
JournalJournal of Monetary Economics
Volume54
Issue number1
DOIs
Publication statusPublished - 2007 Jan
Externally publishedYes

Fingerprint

Demographic trends
Social security reform
Factor prices
Social security system
Benchmark
Experiment
Capital accumulation
Demographic transition
Finance
Interest rates
World economy
Economics
Open economy
Wage rate
Scenarios
Dynamic general equilibrium model
Payroll tax
Capital flows
Fiscal

Keywords

  • Capital flows
  • Demographic trends
  • Social security
  • Two-region model

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Global demographic trends and social security reform. / Attanasio, Orazio; Kitao, Sagiri; Violante, Giovanni L.

In: Journal of Monetary Economics, Vol. 54, No. 1, 01.2007, p. 144-198.

Research output: Contribution to journalArticle

Attanasio, Orazio ; Kitao, Sagiri ; Violante, Giovanni L. / Global demographic trends and social security reform. In: Journal of Monetary Economics. 2007 ; Vol. 54, No. 1. pp. 144-198.
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