Norwegian pension reform: Fiscal and social sustainability

The primary objective of the project has been to analyse effects from the Norwegian pension reform on fiscal and social sustainability. Fiscal effects, macroeconomic effects and distributional effects between different groups and between generations ha been analysed and compared with similar reforms in other countries. By using a dynamic microsimulation model we have updated and extended earlier analyses of direct effects from the Norwegian pension reform on pension expenditures, average compensation rates and distributional effects. Former exogenously assumed effects on labour supply tured out to be consistent with insight gained by econometric analyses at the Frisch Centre. Sensitivity analyses for effects from demographic development and labour market partcipation are included in our macroeconomic analyses. The results from these analyses show substantial improvements of fiscal sustainability and increased supply of labour in the long run compared with a situation where the old system had been maintained. The results are documented in Discussion Paper No. 821 from Statistics Norway. Further effort is accomplished to have the paper published in an international journal. After revising the paper has been resubmitted to the International Journal of Microsimulation. The results from the analyses of distributional effects between generations show that the cohorts who established the old pay-as-you-go old-age pension system gained from it, while younger generations have to pay. Measured by net discounted value of contributions and benefits cohorts born between 1950 and 1975 are those who are most hurt by the reform from 2011, while cohorts born after 2000 gain. These results are documented in Discusion Paper No. 825 from Statistics Norway. After revising the paper has been submitted to the International Journal of Microsimulation. Distributional effects from the pension reform are further analysed in a paper published in the Norwegian journal 'Søkelys på arbeidslivet' No. 1-2, 1966. The paper shows that the effects from the reform differ dependent on how distribution is measured. The total payment of old age benefits from the National Insurance system for a cohort entirely comprised by the new system seems to be more evenly distributed compared to maintaining the old system. The grants from the Research Council have also supported some of the work with an PhD analysing macroeconomic effects from the Norwegian pension reform by using a model with overlapping generations (OLG). The thesis was defended in February 2015. Results from the analysis confirm that pension reforms tightening old-age benefits contemporary with reducing the price of leisure, stimulate labour supply and improve fiscal sustainability. This is also the major effects from the Norwegian pension reform from 2011.

By using a dynamic microsimulation model we update and extend earlier analyses of direct effects from the Norwegian pension reform on pension expenditures, average compensation rates and distributional effects. Exogenously assumed effects on labour supply will be modified based on insight gained by econometric analyses at the Frisch Centre. Sensitivity analyses for effects from demographic development and labour market participaption will be included. In addition to traditional horizontal distributional e ffects we plan to include distributional effects over the life course and between cohorts. The distributional analyses will also be extended to include differentiation by gender and broad categories by level of education. In a first round, earlier macroec onomic analyses will be updated by the later elements of the reform and model improvements. A new and summary macroeconomic analysis at the end of the project period will include the new insight on labour supply effects and improvements and extensions of the model system.