روند جمعیتی جهانی و اصلاح امنیت اجتماعی

How sustainable are the current social security systems in the developed economies, given the projected demographic trends? The most recent literature has answered this question through dynamic general-equilibrium models in a closed-economy framework. This paper provides a new quantitative benchmark of analysis for this question represented by a two-region model (South and North) of the world economy where capital flows across regions. The timing and the extent of the demographic transition—and the associated economic forces shaping capital accumulation and equilibrium factor prices—are very different in the two regions. Thus, the projected paths of interest rate and wage rate in the North diverge substantially between closed and open economy. We perform a wide range of policy experiments under both scenarios. Our main conclusion is that if one is interested in quantifying the path of the fiscal variables (e.g., the value of the payroll tax) needed to keep the social security system viable or to finance a transition towards a fully funded system, then these two benchmarks yield similar results. However, if the focus is on quantifying the path of factor prices, aggregate variables and, ultimately, welfare, then the two approaches can diverge significantly.

The developed world will experience dramatic demographic changes throughout the 21st century. The most important projected “demographic events” are three: (i) a significant increase in longevity which will increase life expectancy at 65 by 1.5 years per decade; (ii) a decline in fertility which will induce negative rates of population growth for the next 50 years; (iii) the retirement of the baby-boom generations, born in the 1950s, which will accelerate the rise of the old-dependency ratio (population 60+60+ as a fraction of the total) after 2010. These demographic changes raise a number of crucial public policy issues. The one at the forefront of the current debate in the economic and political arena is the “sustainability” of the Pay-As-You-Go (PAYG) pension systems which, since their inception in the 1930s, represent one of the main pillars of social insurance policies in many countries across the developed world.1 When the PAYG system was introduced people lived beyond retirement age, on average, for many fewer years than now. As a consequence of the changes in longevity (and parallel trends in fertility), the ratio of retirees to active workers has constantly increased. The remaining two trends highlighted above will further accelerate the ageing of the population structure in the north of the planet and will put the PAYG system under severe strain. For example, in the United States (where the trends are not as daunting as in Japan or Europe), the social security administration, which is currently running a large surplus cumulated thanks to the contributions of the baby boomers, is projected to experience a deficit by 2016 and to exhaust the trust fund entirely, barring reforms, by 2042. The absence of a structural adjustment in the medium run is an unlikely scenario. The relevant question is, rather, how big should the changes in the current tax/benefits parameters be to ensure that the PAYG system will be in equilibrium in the long run? A vast literature has attacked this question using general equilibrium overlapping-generations (OLG) models, in the tradition of Auerbach and Kotlikoff (1987). For example, one can quantify the necessary long-run increase in the payroll tax, in absence of any change in the current level of benefits. De Nardi et al. (1999) and Kotlikoff et al. (2002) predict an increase of around 15% in the next 100 years to keep the U.S. system solvent. Clearly, the quantitative results of these experiments are very sensitive to the dynamic path of the rate of return on capital and the wage rate which are predicted for the next century. At least since Diamond (1965), economists have recognized that these factor prices are affected, in general equilibrium, both by the demographic trends and by the particular (pension) policy option in place during the demographic transition. Moreover, if the demographic trends around the world are not fully synchronized, the evolution of factor prices depends crucially on whether one assumes a closed or an open economy. The set of issues arising when considering an open economy are very rarely addressed. For instance, the calculations mentioned above are typically performed under the assumption of closed economy. In this paper, we argue that an equally interesting—but surprisingly overlooked in the literature—benchmark of analysis for social security reform is a two-region (South and North) open-economy model, where unobstructed capital flows across regions equalize the rate of return on capital. Every country in the developed world (the North) faces quantitatively similar demographic trends and the same thorny issue of how to reform a strained PAYG pension system. In contrast, in the developing world (the South), large-scale social security systems are absent and the demographic trends are markedly different from those of the North. In particular, old-age dependency ratios are less than half than in the North: 8% compared to 18% in 2000, and are projected to converge to the level of the North only after 2100. Roughly speaking, the demographic transition in the South lags the one in the North by seven or eight decades. This lack of synchronization in the demographic trends between North and South generates, in a two-region open-economy model, major economic forces that have not been fully explored in this literature. The objective of the paper is to study whether the quantitative implications of various social security reforms for policy variables, factor prices, macroeconomic aggregates, and welfare of different cohorts in the North are sensitive to the benchmark adopted, i.e., closed vs. open economy.2 The two-region model is a relevant alternative framework, especially in light of the ever-increasing magnitude of global linkages in the world economy. We perform two types of policy experiments. First, we assume that the North will retain a PAYG scheme and we examine several options to finance the system through the demographic transition. In particular, we look, in turn, at the effects of financing the imbalance of the current system by increasing payroll taxes, and consumption taxes; by issuing debt; by reducing benefits, and by increasing retirement age. Second, we assume the PAYG will be gradually transformed into a fully funded system, and we study alternative ways of financing this privatization. We perform all these experiments under both open and closed economy. In the first set of experiments, somewhat surprisingly, we find that the evolution of the policy variables used to finance the PAYG system (e.g., payroll tax, consumption tax, debt, benefits) is remarkably similar in closed and open economy. However, this similarity hides important discrepancies in the dynamics of the aggregate capital stock, aggregate output, and prices. In the two-region model, thanks to the inflow of resources from the South, in the long run the North accumulates capital faster than in closed economy: interest rates decrease (and wages rise) faster than in closed economy. From the point of view of the government budget constraint, in the open-economy equilibrium the gains in the labor income tax revenues due to the higher wage offset almost exactly the losses in the capital income tax revenues due to the lower interest rates. As a result, the equilibrium path of the fiscal variables is almost identical in the two benchmarks. In the second set of experiments, households in the North massively accumulate savings for retirement, as the PAYG system is slowly phased out. This rapid capital accumulation in the North parallels the demographic forces in the South in generating a similar decline in the interest rates in both regions. The path of factor prices in closed and open economy turns out to be quite close. As in the first set of experiments, but for very different reasons, the policy variables end up changing similarly in the two benchmarks. With respect to welfare, the main result that holds across experiments is that in open economy the welfare effects of the reforms in the North are significantly smaller in absolute value than in closed economy. The key reason is that, in open economy, social security reforms have a lighter impact on wage rates and interest rates in the North. Capital can flow into the North when domestic savings are low, keeping wages of the future generations high, independently of the reform. In closed economy, instead, the nature of the reform greatly affects capital accumulation and the future path of wages and interest rates. The chief conclusion of our exercise is, perhaps, that if one is interested in quantifying the dynamics of the fiscal variables (e.g., the payroll tax) needed to keep the PAYG viable, or needed to finance a transition towards a fully funded system, then it does not matter too much whether the closed or open economy view is taken. However, if the focus is on quantifying the evolution of factor prices and aggregate variables, then the two approaches diverge significantly. In terms of welfare, in virtually every policy experiment, the welfare effects of the reform in closed economy are larger in absolute values than those in open economy. There are several branches of the literature related to our paper. First, there is a vast literature on equilibrium OLG models that evaluates quantitatively different scenarios for social security reform in closed economy. A far from exhaustive list includes Geanakoplos et al. (1998), De Nardi et al. (1999), Huggett and Ventura (1999), Kotlikoff et al. (1999), Abel, 2001a and Abel, 2003, Bohn (2003), Diamond and Geanakoplos (2003), and Krueger and Kubler (2005). Second, some authors have argued, within structural models, that the unsynchronized demographic trends across more and less developed countries can shape the dynamics of current accounts. See, among others, Henriksen (2002), Brooks (2003), Domeij and Floden (2004), and Attanasio et al. (2006).3 Third, some authors have explicitly recognized that the closed-economy benchmark may not be the right one to study the implications of reforming the PAYG system. Huang et al. (1997) analyze reforms in the U.S. under the “small open-economy” assumption, with fixed interest rates. Borsch-Supan et al. (2003) and Fehr et al. (2004a) proposed multi-region models of the developed world (i.e., a subset of OECD countries), where the focus is on the effects of pension reform in U.S. and Germany, respectively, in open economy. Fehr et al. (2006) extend their multi-country model to analyze the role of China and conclude that capital flowing from China to the more developed world will significantly contribute to the rise in labor productivity and wages, counteracting the payroll tax hike needed to sustain the PAYG systems. Our paper lies right at the center of these contributions, since it combines all these various approaches by studying quantitatively social security reform in the developed world through a North–South equilibrium OLG model with demographics-induced capital flows. The rest of the paper is organized as follows. Section 2 provides a description of the data on demographic trends in the North and the South. Section 3 outlines the economic environment of our two-region open-economy model and defines the equilibrium. Section 4 describes the calibration of the model. Section 5 contains the results of our policy experiments. Section 6 discusses how robust our results are to the relaxation of various assumptions. Section 7 concludes the paper. The Appendices contain: (i) a detailed description of the data sources and the methodology chosen to model the demographic transition in the two regions, (ii) an outline of the computational algorithm, and (iii) an explanation of the solution of the extended model with endogenous labor supply.

The sustainability of PAYG pension systems in developed countries, in the face of the projected transformations in the demographic structure of the population, is at risk. The current political and economic debate is centered on the best way to reform the system in order to limit welfare losses for the cohorts alive today. The typical approach, when quantifying these effects, is studying transitional dynamics within an OLG model, under the assumption of closed economy. In this paper, we asked whether the results of these typical policy experiments differ if we consider a different benchmark: a two-region model of the world where the unsynchronized demographic patterns between the two regions lead to an adjustment through capital flows. We argued that the answer depends on what the precise focus of the question is. If one is interested in forecasting the required changes in certain key policy variables (like the payroll tax, the consumption tax, etc.) needed to finance the transition, the answer is “no”, due to general-equilibrium effects on the government budget constraint. If one is interested in computing the welfare effects of various policy reforms, then the answer is “yes”, with the welfare impact in open economy being typically smaller in absolute value. We do not necessarily believe that our two-region benchmark with frictionless capital flows is more appropriate than the closed-economy benchmark. It is just the opposite end of the spectrum, and actual economies lie somewhere in the middle. As such, it is at least as interesting as the closed-economy model. And one could argue that the framework we propose, is becoming progressively more relevant. Our model, as well as several other demographics-based model of current account dynamics, predict that capital will soon start flowing from poor to rich countries. Then the typical criticism of neoclassical open-economy models, i.e., that they overpredicts the size of external wealth, will become irrelevant since, arguably, sovereign risk, political uncertainty, and expropriation risk are much smaller in the developed world thanks to better institutions.