Aging and the financing of social security in Switzerland

Abstract

The gains in life expectancy are expected to double the dependency ratio and increase population by 10% in Switzerland until 2050. To quantify the effects on social security and public finances, we use an overlapping generations model with five margins of labor supply: labor market participation, hours worked, job search, retirement, and on-the-job training. A passive fiscal strategy would be very costly. A comprehensive reform, including an increase in the retirement age to 68 years, may limit the tax increases to 4 percentage points of value added tax and reduce the decline of per capita income to less than 6%.