Sustainability of a Pay-as-You-Go Pension System by Dynamic Immigration Control
Posted: 18 Jul 2011 Last revised: 1 Aug 2011
Date Written: July 18, 2011
Abstract
The sustainability of a pay-as-you-go pension system strongly depends on the underlying demographic process determining the inverse old-age dependency ratio (the proportion of the active subpopulation to pensioners), considered as a sustainability index. Based on the classical Leslie population model, a dynamic demographic model including a controlled immigration is set up. A convergent algorithm is given which steers the population towards a demographic equilibrium with a better sustainability index, and at the same time minimizes the yearly immigration. In addition, simulations are provided for Italian data, comparing the demographic dynamics corresponding to different decision scenarios.
Keywords: dynamic demographic model, demographic equilibrium, optimal immigration control
JEL Classification: C61, C63, H55
Suggested Citation: Suggested Citation