The IIASA Social Security Reform Project Multiregional Economic-Demographic Growth Model: Policy Background and Algebraic Structure

MacKellar, F.L. & Ermolieva, T. (1999). The IIASA Social Security Reform Project Multiregional Economic-Demographic Growth Model: Policy Background and Algebraic Structure. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-99-007

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Abstract

The model presented here is a neoclassical two-factor multiregional economic-demographic growth model. It is designed to assess the impacts of different demographic futures, labor-market scenarios, combinations of accumulation-based and transfer-based pension systems, and international portfolio allocations decisions on a range variables which play an important role in the population aging and social security reform debates. Among these are: the overall rate of economic growth; the relative incomes of retirees and workers; financial inflows into and out of the public and private pension systems and their implication for capital formation; and international capital flows.

The model tracks income and outlay of households by single-year age groups, as well as intergenerational transfers of resources via bequests. Households accumulate assets during working years and then dissave in retirement, in addition to which, intergenerational transfers between the working and the retired populations are mediated through the PAYG public pension system. Capital may be installed either at home or abroad.

In this paper, the policy background is briefly summarized and the algebraic structure of the model is elaborated. Other Interim Reports in this series describe the simulation and robustness characteristics of the model and present the results of model applications.

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