Discussion paper

DP17078 Pension reform and wealth inequality: evidence from Denmark

A growing literature explores reasons for rising wealth inequality, but disregards the role
of pension systems despite their well-understood influence on life-cycle saving. In theory
and according to available evidence, both pay-as-you-go (PAYG) and fully-funded (FF) pension
schemes crowd out voluntary retirement saving. They differ because aggregate savings decrease
in the former but increase under the latter system. Unlike most nations, Denmark has seen a
decline in wealth inequality in recent decades. This paper studies a calibrated life-cycle model
of Denmark and employs unique registry data to argue that a Danish pension system transition,
from a mostly PAYG to a dominant, mandated FF scheme, explains much of this decline


Andersen, T, J Bhattacharya, A Grodecka-Messi and K Mann (2022), ‘DP17078 Pension reform and wealth inequality: evidence from Denmark‘, CEPR Discussion Paper No. 17078. CEPR Press, Paris & London. https://cepr.org/publications/dp17078