Consequences of demographic aging and pension reforms on capital flows in Europe.

Summary We present a quantitative analysis of the impact of differences in the aging process and of pension reforms on capital flows in the monetary union. To this end, we develop a general equilibrium model applied to the case of three Eurozone countries: Germany, France and the Netherlands. We show that the dynamics of capital accumulation and the financial sustainability of pension systems differ according to the assumption made about the openness of the economy. Two main conclusions emerge from the examination of the different forecasting scenarios considered. The first concerns the importance of the assumptions made regarding activity behavior for the question of the financial solvency of pension systems. The second is the impossibility of borrowing alone in the long term.