Effect of Demographic Change on Economic Growth under Various Pension Systems
Abstract
Nowadays several countries are becoming aging society causing an increase in the expenditure for their pension systems and a decline in economic growth. Therefore, the objective of this study is to find the best pension system for economic growth. To do so, we construct 3 pension systems, namely, 1) informal support system, 2) mandatory public pension system, and 3) the combination of the first two systems. The additional role of the government in our study is to invest pension tax in public education in order to build up human capital accumulation. The main result is that the mandatory public pension system yields the highest economic growth, saving, output per effective labor, and capital per effective labor in the balanced growth path. Also, the mandatory public pension system is the best for economic growth because informal family support for the elderly in the other systems leads to lower amount of saving and capital accumulation which in turn brings about lower economic growth and output per capita. Finally, if the economy transits to aging society, the mandatory public pension system gains even more output per capital than the informal one.
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