DP16451 OECD Pension Reform: it is the business cycle, not the demography!

Author(s): Roel Beetsma, Ward E Romp
Publication Date: August 2021
Keyword(s): adjustment costs, business cycle indicators, contraction, expansion, narrative identification, old-age dependency ratio, pension reform measures
JEL(s): H55, H62, J11, J26
Programme Areas: Public Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16451

Using a new real-time dataset from Beetsma et al. (2020) containing all pension reform measures in 23 OECD countries between 1970 and 2017, we demonstrate that, in contrast to what one might a priori expect, the timing of pension reform measures coincides with business cycle shocks and not with current or projected demographic shocks. We rationalise this finding using a political-economy model with two-sided adjustment costs to explain a lack of response of pension reform measures to changes in demographic indicators.