Challenges for European welfare states
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In the absence of social security reform, current pension entitlements of an aging population exceed future fiscal capacity. However, structural labor market reforms facilitate the transition to sustainable schemes in which a sizeable part of the current generosity of European welfare states can be maintained. In fact, many European states have already taken important steps in this direction. In the end insufficient productive capacities to support the welfare state pose smaller challenges to reform than do time inconsistencies built into the political process of redesigning pension plans.
KeywordsEuropean welfare states Pension reform population aging
JEL ClassificationH55 I00 J10 J26
This article is an edited version of the keynote given at the 70th Annual Congress of the International Institute of Public Finance, Lugano, Switzerland, 20–23 August 2014. It summarizes work and insights which have been collectively developed at the Munich Center for the Economics of Aging (MEA); thanks go to all MEA researchers. I am grateful for the comments received by the referees and in particular to the volume editors Monika Bütler and Kerstin Schneider who encouraged me to write this review. They have been congenial and very helpful editors.
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