How to Pay for the Crisis or Macroeconomic implications of pension reform

Publication Type: NIESR Discussion Paper, Publication Date: December, 2009, Theme(s): Financial economics and regulation and Macroeconomic analysis, NIESR Author(s): Barrell, R., Hurst, I. and Kirby, S., NIESR Discussion Paper Number: 333

The national debt stock of the UK is rising sharply as a result of the economic crisis, and equilibrium output is falling, with the capital stock contracting. Both problems could be alleviated by the rapid introduction (but slow implementation) of a policy to extend working lives. The paper analyses a delayed extension of working lives in the UK. Increasing working lives will in equilibrium raise consumption and tax revenues and reduce pension spending. These gains by the government can be used to improve services, cut taxes or pay off debts.