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On the impact of indexation and demographic ageing on inequality among pensioners

Dekkers, Gijs (2010): On the impact of indexation and demographic ageing on inequality among pensioners.

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Possible future trends in the development of pension adequacy are usually simulated using dynamic microsimulation models. These models are very complex and include many different processes. This, and the many individual interactions, makes it difficult to see which procedures and relations underlie the observed simulation results. Hence, the discussion of simulation results, and especially trends, tend to be based on ‘common sense reasoning’ using only a few fundamental parameters. If this strategy to explain the simulation results from a dynamic MSM is valid, then a simple stylized model describing these fundamental relations should be able to capture the long-term trends in inequality among pensioners. The results of the stylized model could then be comparable to those of a dynamic microsimulaton model. This strategy also allows to validate dynamic microsimulation models. This paper uses such a simple model to show some general relations between indexation, retirement age, demographic ageing and the inequality of pensions. The results of this stylized model are then compared to simulation results of a dynamic MSM, in this case MIDAS Belgium.

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