Macroeconomic effects of proposed pension reforms in Norway

Abstract

Abstract:\nAgeing combined with generous welfare state schemes makes the present fiscal policy in Norway\nunsustainable, despite large government petroleum revenues. We estimate to what extent two\nsuggested reforms of the public pension system improve fiscal sustainability and stimulate\nemployment, two main objectives of the reforms. To this end we apply two large models iteratively: 1)\na detailed dynamic micro simulation model to estimate government pension expenditures; 2) a large\nCGE-model to estimate general equilibrium effects on all tax bases and employment, i.e.\nmacroeconomic effects. We find that the reform proposals have much larger effects than typically\nfound for reforms of the tax and trade policy. Whereas maintaining the present system implies that\nthe payroll tax rate must be increased from about 13 percent today to 25 percent in 2050, both\nproposals imply that taxes can be reduced from the present level in all years up to 2050. Most of this\nreduction can be attributed to higher employment.