Work detail

Pension Systems -- Models of Dynamic Equilibrium

Author: Mgr. Jan Houska
Year: 2004 - summer
Leaders: doc. Ing. Ondřej Schneider MPhil., Ph.D.
Consultants:
Work type: Economic Policy
Masters
Language: Czech
Pages: 106
Awards and prizes:
Link:
Abstract: This thesis examines influence of aging of the Czech population on a macroeconomic equilibrium and optimal microeconomic behavior of households in the economy in dependence on three types of pension systems: current pension system of the Czech Republic with defined benefit, system with defined contribution and fully funded system.
The analysis is realized in the modified dynamic model of general economic equilibrium (originally from A. J. Auerbach a L. J. Kotlikoff). The model is modified for analyzing different types of pension systems and for using detail demographic data about the age structure from the Czech Population Projection for years 2002-2065 elaborated by B. Burcin and T. Kučera (Department of demography of Charles University).
The first part of this thesis contains a brief theoretical introduction to the demographic development of the age structure, to the process of its aging and to its projection. Then follows the description of the pension systems and the potential risks, which jeopardize their financial stability. Demographic and economic risks are analyzed in the two-generations overlapping model.
The second part of the thesis contains description of the modified dynamic model, used demographic data from the Czech Population Projection and results of the model. Main analyzed problems are: 1) the development of the ratio aggregate capital to aggregate labor supply, 2) the influence of changes of net wage (derived from gross wage and social security tax), of interest rate and of the level of benefits on optimal behavior of households and 3) changes of lifetime utility and development of the economic situation of seniors compared with young people in society. All problems are analyzed for the three types of the pension systems PAYG DB, PAYG DC and FF during aging of the Czech population.
The conclusion shows that the aging of population has important influence on the general economic equilibrium and it shows why is very difficult for the government to reform the PAYG systems with defined benefits.

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