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The long run influence of pension systems on the current account

Published online by Cambridge University Press:  14 November 2019

Thomas Davoine Open the ORCID record for Thomas Davoine [Opens in a new window]
Thomas Davoine*
Affiliation:
Institute for Advanced Studies, Josefstaedter Strasse 39, 1080Vienna, Austria
*
Corresponding author. Email: [email protected]
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Abstract

Explaining cross-country differences in current accounts is difficult. While pay-as-you-go pensions reduce the need to save for retirement, contributions to capital-funded pensions are saved for future consumption. An overlapping-generations analysis shows that capital-funded pensions increase net foreign assets holdings. With a multi-pillar system whose capital-funded part accounts for 18% of pensions, the Austrian current account balance would be 1 percentage point of gross domestic product (GDP) higher than with pure pay-as-you-go pensions in 20 years. By comparison, the Austrian current account surplus averages 1.8% of GDP. Empirically, I find that the current account of high-income countries increases with the coverage and replacement rates of capital-funded pensions.

Keywords

Capital-funded pensionscomputable general equilibriumcurrent accountpay-as-you-go pensionspopulation agingC68E60F21H55
Type
Article
Information
Journal of Pension Economics & Finance , Volume 20 , Issue 1 , January 2021 , pp. 67 - 101
Copyright
Copyright © Cambridge University Press 2019

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