Financing Public Pension and Labor Supply for the Aged

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The present study analyzes fiscal effects of the 1994 pension reform. This reform reduced pension benefits of the employees between 60 and 65 of age to encourage labor supply of this age group. New demographic data as well as the data of pension participation rate for each generation have become recently available. We constructed an inter-generational model that incorporates these new data. Main findings are as follows :First, the reform made the net pension benefit for each generation more equal than before.Second, the balance of pension fund does not turn negative even at the peak of the graying period.Third, if an excess fiscal burden of 2.8% of GDP is contributed every year, the pension fund will monotonically increased.Fourth, fiscal effects of the labor supply increase caused by the "partial pension system"were estimated.