Submitted March 2008.
Demographic Change and Pension Reform in Spain: An Assessment in a Two-Earner, OLG Model†
Article first published online: 22 OCT 2010
© 2010 The Authors Fiscal Studies © 2010 Institute for Fiscal Studies
Volume 31, Issue 3, pages 405–452, September 2010
How to Cite
Sánchez Martín, A. R. and SánchezMarcos, V. (2010), Demographic Change and Pension Reform in Spain: An Assessment in a Two-Earner, OLG Model. Fiscal Studies, 31: 405–452. doi: 10.1111/j.1475-5890.2010.00120.x
Funding from the Spanish MCYT projects ECO2009–09614 and ECO2008-06395-C05-1 is gratefully acknowledged. The authors would also like to thank two anonymous referees and Jérôme Adda (editor) for particularly valuable comments and suggestions.
- Issue published online: 22 OCT 2010
- Article first published online: 22 OCT 2010
- pension system reform;
- two-earner household
Recent pension reforms in Spain have been guided by two opposite goals: achieving financial stability and improving redistributive aspirations. In particular, reforms implemented in 1997/2001 entailed a mixture of both through: (i) changes in the pension formula; (ii) the extension of entitlement to early retirement to all cohorts; and (iii) increases in survival pensions. This paper builds an applied general equilibrium OLG model that captures the fundamental non-stationarity of the Spanish reality (ageing population, education transition and increasing female attachment to the labour market) to assess the impact of those reforms. As a novel feature with respect to the literature, households in our model economy are made up of two potential earners who make saving and labour supply decisions. Our main conclusions from the analysis are at three different levels. First, the Spanish pension system is clearly unsustainable, with pension expenditure reaching a figure of about 18 per cent of GDP in 2050, and the reforms have clearly been