Aging, pension reform, and capital flows: a multi-country simulation model

Börsch-Supan, Axel ; Ludwig, Alexander ; Winter, Joachim

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URN: urn:nbn:de:bsz:180-madoc-28131
Document Type: Working paper
Year of publication: 2001
The title of a journal, publication series: Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume: 01-08
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: THES_SOZ: F21 E27 G15 H55 J11 ,
Subject headings (SWD): Deutschland , Europäische Union , Kapitalmobilität , Rentenreform , Mehrgenerationenmodell , Mehr-Länder-Modell , Simulation
Keywords (English): aging , pension reform , capital mobility
Abstract: In this paper, we present a quantitative analysis of the international capital flows induced by differences in population aging processes across countries and by pension reforms. In the vast majority of countries, demographic change will continue well into the 21st century. It is well known that within each country, demographic change alters the time path of aggregate savings, even more so in countries where fundamental pension reforms and shifts towards more pre-funding are implemented. While the patterns of population aging are similar in most countries, the timing differs substantially, in particular between industrialized and less developed countries. To the extent that capital is internationally mobile, population aging will therefore induce capital flows between countries. In order to quantify these effects, we develop a stylized multi-country overlapping generations model, and we use long-term demographic projections for several world regions to simulate international capital flows over a 50 year horizon. Our simulations suggest that capital flows from fast-aging industrial countries such as Germany to the rest of the world will be substantial. Closed-economy models of pen-sion reform are likely to miss quantitatively important effects of international capital mobility.

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