Browsing by Subject "J26"

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  • Kinnunen, Helvi (2008)
    Bank of Finland Research Discussion Papers 21/2008
    This paper investigates public pension funding using a dynamic general equilibrium macroeconomic model (DSGE) that facilitates investigation of distortionary effects of fiscal and pension policy responses to ageing. The model is calibrated to the Finnish economy, which will encounter substantial ageing pressures in the near future. During the transition to an older population structure ageing costs can be substantially lowered by allowing public funds to smooth out the tax responses. Cutting down on pension prefunding at a time when the pace of ageing is at its peak reduces the necessary tax hikes and stimulates labour supply growth at the moment when the labour market is tightest. With smaller funding needs, ageing leads to a slower growth in labour costs, a better employment conditions and faster production growth. Keywords: ageing, general equilibrium, public finance, government funds JEL classification numbers: E13, H55, J11, J26
  • Kilponen, Juha; Kinnunen, Helvi; Ripatti, Antti (2006)
    Bank of Finland Research Discussion Papers 28/2006
    This paper extends Gertler's (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure.The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing.When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, population ageing has clearly much larger effects on public finance, when compared to mechanical sustainability calculations.Stochastic simulations suggest that lengthening of working time has only a modest alleviating effect on the fiscal burden of ageing.This is due to the fact that stochastic variation in the length of working time has only a relatively small effect on the model's dependency ratio.Variation in life expectancy is clearly much more important. Key words: ageing, general equilibrium, public finance, demographic uncertainty JEL classification numbers: E13, H55, J11, J26