Abstract:
This paper presents an overlapping generation model including postponed retirement and government expenditure, and we explore the effect of postponed retirement and adjustment of government expenditure on the replacement ratio. We find that postponed retirement and government social security expenditure have positive effect on the replacement ratio. Postponed retirement decreases saving, which in turn lowers both capital per capita and wage income. Postponed retirement decreases pension through its negative impact on wage income, whereas it has positive effect on pension through its impact on the labor supply. Government social security expenditure lowers productive expenditure, which in turn has negative effect on capital and wage income. Government social security expenditure can increase pension directly. Our results suggest that, the government should adopt growth enhancing program from both macro and micro perspectives, so as to improve social welfare.
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