To what extent do Demographic changes affect Pay-As-You-Go Pension Systems? : Using the fixed effects regression model with panel data on 20 OECD countries from 1991 to 2017

Abstract: This thesis investigates the effect of demographic changes on the pay-as-you-go (PAYG) pension system. Demographic changes specifically refer to increasing life expectancy and decreasing fertility rates. An increase in life expectancy leads to a rise in the number of pensioners. A decrease in the fertility rate leads to a smaller population financing future PAYG pension payments. Thus, this thesis investigates the extent of the effect of demographic changes on the PAYG pension system and to know if these effects are negative or positive. Based on panel data for 20 Organisation for Economic Co-operation and Development (OECD) countries for the years 1991 to 2017 and using the fixed effects regression model, the effects of life expectancy and fertility rate on PAYG pension expenditure are estimated. It is found that increasing life expectancy adversely affects the PAYG pension system. However, the result obtained for fertility rate shows that it has no statistically significant effect on the PAYG pension system.