Varying the parameters of the Slovenian pension system: an analysis with an overlapping-generations general equilibrium model

The article presents an analysis of welfare effects in Slovenia, an analysis of macroeconomic effects of the Slovenian pension reform and an analysis of effects of the pension fund deficit on sustainability of Slovenian public finances with a dynamic OLG general equilibrium model. Stress was layed upon varying two parameters of the current pension system; the age of retirement and the indexation rate of pensions. It was established that by tightening these parameters the elderly would lose, while the present and future generations would gain. The macroeconomic effects were in accordance with expectations; the employment level increased, while the effects of tightened parameters on real consumption were negative. Since the PAYG burden on incomes decreased, the investment activity and thus the capital stock increased somewhat as well. Nevertheless, the long-term impact on the real GDP appeared to be ambiguous. Without doubt one has to take into account the demographic slowdown of GDP growth. Finally, tightening the parameters of the pension system substantially increased the long-term sustainability of the pension system; while lower indexation level of pension considerably decreased the deficit of the public pension fund, increase of retirement age was even able to delay the incidence of additional deficit.