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Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.
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Chapter 13: Adjusting welfare systems to ageing populations – challenges and experiences in OECD countries

Willi Leibfritz


Willi Leibfritz1 INTRODUCTION As is well known, the ageing of populations could pose major challenges for welfare systems. Age-related public spending, in particular old-age pensions and health care spending are projected to increase rapidly in the coming decades. This could threaten fiscal sustainability. Without adequate reforms the fiscal costs of ageing populations would finally have to be financed by higher taxes, which could reduce labour supply and thus erode the base for financing welfare systems. Countries have started to adjust their welfare systems, in particular pension systems, better to cope with ageing. This chapter first looks at projections of age-related spending in OECD countries. It then discusses the direction in which social security reforms are going. Generally, reforms are aiming to deal with the fiscal consequences of ageing and, at the same time, improving the efficiency of social systems and labour participation. The success of these reforms depends on how the necessary macro-budgetary controls are accompanied by micro reforms, which improve system efficiency and the incentive structure of the economy. Of particular importance is how these reforms affect labour supply. As the share of older workers in the working-age population will increase with ageing populations, policies should aim at reducing labour supply disincentives for older workers. This chapter discusses policies to reduce such disincentives implicit in various social programmes. It finds that significant disincentives exist even after recent reforms. Removing those would help to improve the adjustment of the effective retirement age to rising life...

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