Population Aging and Growth: The Effect of Pay-as-You-Go Pension Reform

This paper examines how pay-as-you-go (PAYG) pension reform from a defined-benefit scheme to a defined-contribution scheme affects economic growth in an overlapping-generations model with endogenous growth. We show that in economies in which the old-age dependency ratio is high and the size of pension benefits under a defined-benefit scheme is large, such a pension reform mitigates the negative growth effect of population aging caused by a decline in the population growth rate or an increase in life expectancy.