Pension Reforms and Adverse Demographics: Options for the Czech Republic
Year: 2019 Volume: 69 Issue: 2 Pages: 174-210
Abstract: This paper estimates changes in pensions and long-term financial sustainability of the Czech pension system in the light of population ageing, market imperfections or a potential economic downturn, and assesses feasibility of various parametric and structural reforms. To do so, it develops a bespoke OLG model with heterogeneous agents, bequests, productivity shocks, market imperfections, and realistic representation of three distinct types of pension systems calibrated using real-world data. Numerical results are obtained through computer simulations. The estimates show that a well-designed multi-pillar pension scheme provides good results in a number of performance indicators without leading to excessive costs of transition, whereas maintaining the current PAY-GO scheme would lead to a gradual decrease in real pensions, lower pension-to-wage ratios, higher budget deficits, or any combination thereof, unless the statutory retirement age increases beyond 67 years by 2050.
JEL classification: C68, H55, J11
Keywords: OLG, pension system, demographical change, general equilibrium model
RePEc: https://ideas.repec.org/a/fau/fauart/v69y2019i2p149-210.html
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