Pension reform and wealth inequality: Theory and evidence

Torben M. Andersen; Joydeep Bhattacharya; Anna Grodecka-Messi; Katja Mann

doi:10.1016/j.euroecorev.2024.104746

Pension reform and wealth inequality: Theory and evidence

Torben M. Andersen, Joydeep Bhattacharya, Anna Grodecka-Messi, Katja Mann^*

^*Corresponding author af dette arbejde

Institut for Økonomi

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

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Abstract

A growing literature explores reasons for rising wealth inequality, but is mostly silent on the role of pension systems despite their well-understood influence on life-cycle savings. This paper develops a simple life-cycle model to lay bare the primary theoretical mechanisms connecting pension systems, asset accumulation, and the wealth distribution. Mandated fully-funded plans transform individuals with lower incomes, often characterized as low savers, into asset owners, and may also imply a more equal wealth distribution than pay-as-you-go-based systems. To test the empirical validity of these predictions, the paper explores a pension reform in Denmark, a country that witnessed declining wealth inequality over the last decades. In a calibrated life-cycle model employing unique register data, the Danish pension reform emerges as a key factor explaining the downward trend in wealth inequality.

Originalsprog	Engelsk
Artikelnummer	104746
Tidsskrift	European Economic Review
Vol/bind	165
ISSN	0014-2921
DOI	https://doi.org/10.1016/j.euroecorev.2024.104746
Status	Udgivet - jun. 2024

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10.1016/j.euroecorev.2024.104746Licens: CC BY

1-s2.0-S0014292124000758-mainForlagets udgivne version, 1,4 MBLicens: CC BY

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abstract = "A growing literature explores reasons for rising wealth inequality, but is mostly silent on the role of pension systems despite their well-understood influence on life-cycle savings. This paper develops a simple life-cycle model to lay bare the primary theoretical mechanisms connecting pension systems, asset accumulation, and the wealth distribution. Mandated fully-funded plans transform individuals with lower incomes, often characterized as low savers, into asset owners, and may also imply a more equal wealth distribution than pay-as-you-go-based systems. To test the empirical validity of these predictions, the paper explores a pension reform in Denmark, a country that witnessed declining wealth inequality over the last decades. In a calibrated life-cycle model employing unique register data, the Danish pension reform emerges as a key factor explaining the downward trend in wealth inequality.",

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AB - A growing literature explores reasons for rising wealth inequality, but is mostly silent on the role of pension systems despite their well-understood influence on life-cycle savings. This paper develops a simple life-cycle model to lay bare the primary theoretical mechanisms connecting pension systems, asset accumulation, and the wealth distribution. Mandated fully-funded plans transform individuals with lower incomes, often characterized as low savers, into asset owners, and may also imply a more equal wealth distribution than pay-as-you-go-based systems. To test the empirical validity of these predictions, the paper explores a pension reform in Denmark, a country that witnessed declining wealth inequality over the last decades. In a calibrated life-cycle model employing unique register data, the Danish pension reform emerges as a key factor explaining the downward trend in wealth inequality.

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Pension reform and wealth inequality: Theory and evidence

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