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Increased Pension Savings: Blessing or Curse? Social Security Reform in a Two‐Sector Growth Model
Author(s) -
VAN GROEZEN BAS,
MEIJDAM LEX,
VERBON HARRIE A. A.
Publication year - 2007
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2006.00557.x
Subject(s) - blessing , curse , economics , pension , social security , commodity , capital (architecture) , labour economics , endogenous growth theory , market economy , human capital , finance , archaeology , sociology , anthropology , history
This paper analyses the consequences of a switch to a more funded pension scheme for economic growth in an economy that consists of a capital‐intensive commodity sector with endogenous growth and a labour‐intensive services sector. The increased savings cause long‐run growth to be higher in a closed economy, provided capital and labour are not strong substitutes. The reverse holds for a small open economy. More funding can therefore turn out to be a curse instead of a blessing for future generations, unless countries implement their reforms simultaneously or impose a tax on labour‐intensive services.