This paper develops a multigenerational overlapping (OLG) model to investigate\nthe welfare effects of pension reforms in an aging economy. Given the\ndeclining trend in the proportion of young people to the old aged, it is feared\nthat existing pay-as-you-go pension system may not be sustainable and it necessitates\nhigher tax or premium contributions to maintain the sustainability\nof the fiscal and pension system. This paper investigates the effects of four\nreform programs aiming to enhance the sustainability of the pension system.\nThe programs are: (a) an increase in pension contribution, (b) a reduction in\npension benefit, (c) an extension of mandatory retirement age, and (d) a combination\nof program (b) and (c). Policy simulation results from this paper indicate\nthat extending mandatory retirement age harms only little of the current\ngenerations� lifetime utility whereas it gradually improves future generations�\nlife time utility. On the contrary, increase in pension contribution reduces\nlifetime utility of the current generation without benefitting future generation.\nAlternately increase in contribution ratio improves future GDP\ngrowth whereas reducing replacement ratio cannot. Finally, an increase in\npension contribution worsens government budgetary condition whereas reducing\nreplacement ratio does not.
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