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The Economics of an Ageing Population

Macroeconomic Issues

Edited by Paolo Onofri

The Economics of an Ageing Population studies the effects of demographic transition on the economies of industrialised countries. The authors demonstrate that an ageing population does not necessarily lead to a reduction in growth, providing that the working population are more productive and save a greater percentage of their income. They look in detail at the examples of Italy and Japan, two countries which have the fastest ageing populations in Europe and the world respectively.
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Chapter 5: Distributional impact of social security reform

Barry Bosworth, Gary Burtless and Claudia Sahm


Barry Bosworth, Gary Burtless and Claudia Sahm* 1. INTRODUCTION The United States, along with most other industrial countries, is debating how to modify public retirement programs in response to population ageing. The debate has identified three broad approaches to reform: increasing contribution rates; reducing benefits; and pre-funding a larger fraction of future obligations. Opinions about these approaches differ because the options have differing distributional impacts, both on highand low-wage workers within a cohort and across age cohorts. The debate over the first two policy options is dominated by distributional concerns. Boosting contribution rates will favor workers who are already retired or near retirement; reducing benefits hurts people who are retired or near retirement. The policy choice between the two options is viewed from the perspective of a zero-sum conflict in which the benefits or taxes of one generation or group of workers must be sacrificed in the interest of maintaining the incomes of another. The total amount of future resources available for consumption is assumed fixed, and the debate is over how to divide them between workers and retirees and between high- and low-wage workers. From an economic perspective, the option of advance funding introduces a different kind of choice. The pool of resources for future consumption cannot be assumed to remain constant. It can rise or fall depending on today’s choice of an advance funding policy. Current workers can fund a greater part of the cost of their own pensions...

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