Funded pensions, labor market participation, and economic growth

This paper analyses a model of overlapping generations in which agents who do not participate in the labor market are unable to borrow. Thus an increase in a fully funded pension raises aggregate savings even with a fixed participation rate, since private savings are not crowded out one-for-one. When labor force participation is determined endogenously, a rise in the level of fully funded pensions increases aggregate employment. This rise in employment augments growth, directly by raising per capita savings and indirectly by affecting tax and interest rates