Pensions under Ageing Populations and the EU Stability and Growth Pact*
Department of Economics, University of Amsterdam and Netspar, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands, email: R.M.W.J.Beetsma{at}uva.nl.
Directorate-General for Economic and Financial Affairs, European Commission, BU-1, 5/179, B-1049 Brussels, Belgium, email: Heikki.Oksanen{at}ec.europa.eu
This article explores how the Stability and Growth Pact (SGP) may cope with the future costs of population ageing in the European Union. Clearly, population ageing has forced countries to reform their pension systems, and will continue to do so, both by reducing the generosity of pension arrangements and by switching to funding rather than relying on pure pay-as-you go pension provision. We study how such reforms affect the room for adhering to the SGP, but also how the SGP may induce or hamper the incentives for reform. We will refer to recent literature on ageing and pensions and on the SGP. We also calibrate a simple model for addressing intergenerational equity and discuss its implications for the SGP. (JEL codes: H11, H55, H60)
Key Words: Public pensions • population ageing • government budget deficit and debt • European Union stability and growth pact.
*A previous version of this article was partly prepared while Roel Beetsma stayed at the European Commission under the DG ECFIN Visiting Fellows Programme in January–February, 2007 (contract number 299/2006/SI2.452.980), and subsequently published as Beetsma and Oksanen (2007). Roel Beetsma thanks the Commission for the stimulating research environment. We thank for helpful comments three anonymous referees, Torben Andersen, Jan-Marc Berk, Marco Buti, Antoine Deruennes, Willem Heeringa, Clemens Kool, Joao Nogueira Martins, Lucio Pench, Rick van der Ploeg, Andras Simonovits and Salvador Valdés-Prieto, Ed Westerhout as well as participants at a seminar at the European Commission, a Netspar panel meeting and the 2008 Banca d’Italia Workshop on Fiscal Indicators (Perugia). The usual disclaimer applies.