The Future of Public Pensions in the Seven Major Economies

Abstract

We specify a computable general equilibrium model with overlapping generations allowing for variable life-expectancy, for studying the future of public pensions in the seven major economies. The main conclusions are: First, ageing of the population is a problem very similar from one developed country to another. Second, this problem is not so much worrying as is sometimes suggested and policies in which Pay-As-You-Go financing is maintained and the retirement age held constant are allowable. Third, there is no “one best social security policy”. Fourth, there is a trade-off between, on the one hand, lower interest rates and taxes, higher investment and output, and so on, and, on the other hand, a higher standard of living of the retired. Fifth, these results hold under the assumption of closed economies as well as under the polar assumption of small open economies.

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