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1 results

  • The long run influence of pension systems on the current account

  • Thomas Davoine
  • Journal:
    Journal of Pension Economics & Finance / Volume 20 / Issue 1 / January 2021
    Published online by Cambridge University Press:
    14 November 2019, pp. 67-101

  • Explaining cross-country differences in current accounts is difficult. While pay-as-you-go pensions reduce the need to save for retirement, contributions to capital-funded pensions are saved for future consumption. An overlapping-generations analysis shows that capital-funded pensions increase net foreign assets holdings. With a multi-pillar system whose capital-funded part accounts for 18% of pensions, the Austrian current account balance would be 1 percentage point of gross domestic product (GDP) higher than with pure pay-as-you-go pensions in 20 years. By comparison, the Austrian current account surplus averages 1.8% of GDP. Empirically, I find that the current account of high-income countries increases with the coverage and replacement rates of capital-funded pensions.