Much Ado About Nothing? Demographic Bulges, The Productivity Puzzle, and CPP Reform," Contemporary Economic Policy 17

Scholars and policy makers forecast that future demographically driven financial imbalances will undermine the political and financial sustainability of pay-as-you-go social insurance arrangements like the Canada Pension Plan (CPP). Proposed reforms for the CPP primar-ily involve reducing the benefits provided, hence reducing liabilities, and/or raising the taxes levied on labour income which finance the arrangement. The purpose of this paper is to demonstrate in an over-lapping generations framework how demographic factors not only af-fect taxes required to finance the prescribed benefits, but also wages. While there may be fewer workers supporting more retirees in the fu-ture, it may also be the case that the incomes of those workers will rise substantially over the same time period leaving them much better able to afford the required taxes