We assess the political support for parametric reforms of the Pay-As-You-Go pension system following a drop in the fertility rate. Using a continuous time overlapping generations model, we argue that reforms that consist in cutting pension benefits or increasing the retirement age are likely to receive a strong political support. An increase in the contribution rate has, on the contrary, fewer chances to be approved by the majority of the voters. This framework also allows to identify the costs and benefits of postponing each type of reform and to determine how the timing of the different reforms affects their political support.
- Pay-As-You-Go; parametric reforms; fertility shock
Available at: http://works.bepress.com/georges_casamatta/15/