Effect of Structural Reforms of Pension System on the Economy and Capital Market of Iran Based on Overlapping Generations Model

Subject Areas : Journal of Investment Knowledge

Hamid Rezazadeh ¹ (PhD. Candidate, Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.)
Mostafa Sargolzaei ² (Assistant Prof., Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.)
Moslem Peymany Foroushany ³ (Assistant Prof., Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba’i University, Tehran, Iran.)

Received: 2022-03-08 Accepted : 2022-05-22 Published : 2024-12-21

Keywords: "pension funds", "Overlapping Generations Model", "Capital Market", "Pension Reform",

Abstract :

The main purpose of this study is investigating effects of DB-PAYG and Full-Funded pension systems on the economy and capital market of Iran. The effects of these two pension systems have been studied in form of different fiscal policies by simulating an Overlapping Generations Model. Simulated fiscal policies are compared to a situation which society has no pension system and people spend their income only on their own consumptions or savings. The results show that in the DB-PAYG pension system, reduction of capital stock and therefore the reduction of output and level of welfare are significant. Fully-Funded pension system does not reduce the level of welfare, capital stock and production, also creating an intergenerational income distribution system. so it works better than other system. Iran's current pension system is DB-PAYG, so transferring to the Full-Funded pension system, as structural reforms, have been proposed. The dynamic of changing the pension system has been estimated and the effects of these reforms on the capital market have also been studied. The results show that structural reforms, in the long run will increase the capital stock and aggregate savings, so will increase the value and depth of the capital market, increase efficiency and corporate governance of enterprises operating in the capital market.

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