Jessica Loke
For many countries, age pension expenditure will increase dramatically over the next few decades due to a shift in demographics. In the literature, research and solutions have mostly been concerned with separate financing systems, such as pay-as-you-go, means-testing and superannuation. A broad comparison between the systems has received limited attention.
This paper examines the cost and economic welfare of these programs using a stochastic overlapping generations model calibrated to the Australian economy. Including the benchmark, eight different models are evaluated. In addition to reducing fiscal burden, analysis indicates that models with an enforced savings component result in increased social welfare as agents accumulate large asset stockpiles allowing them, in aggregate terms, to consume more with a lower labour supply.
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