AGING, INTERGENERATIONAL DISTRIBUTION AND PUBLIC PENSION SYSTEMS

This paper develops an intertemporal simulation model capable of addre ssing the macroeconomic and distributional effects of demographic shoc ks in a small open economy. Two sources of population aging are examin ed, viz. lower birth rates and prolonged expected lifetimes at retirem ent age. Due to strong expectational effects, both shocks are found to change average consumption in a downward direction, in the short run as well as in the long run. This effect is matched by a strong net acq uisition of foreign assets. Furthermore, it turns out that the interge nerational distribution of the burden of adjusting to an aging populat ion is strongly dependent on whether the benefit rate, the contributio n rate, or the relative non-capital income of pensioners and workers i s held fixed.