The Spillover Effects of Pension Reforms in Europe

This thesis will discuss the international spillover effects of pension reforms made in Italy, Germany and Sweden and how they affect the Netherlands. It does so using an Overlapping Generations Model. Initially the pension schemes of the four respective countries are identified. The pension reforms made in Germany, Italy and Sweden are summarized and are subjected to a qualitative analysis, in which the effects of the reforms upon the country initiating the reform and the Netherlands are examined. It is concluded that when a country using an unfunded pension scheme increases its retirement age, its citizens will experience a lower utility. The citizens of the country using a funded pension scheme will experience a drop in wage, but an increase in pension entitlements. When a PAYG country reforms its pension scheme from a defined benefits scheme towards a defined contributions scheme, the effects depend upon the demographic composition of the population of the unfunded country; is it ageing or not? If an ageing country reforms from defined benefits towards defined contributions, this will increase the capital-labor ratio and will cause a gain of utility. The third and final analysis analyses the effects of tax based reform in order to strengthen the third pillar (savings). It is found that this will again result in an increasing capital-labor ratio and will also cause an increase in experienced utility.