International capital flows: The case of The Netherlands and Germany in an ageing world

Abstract

This paper explores what the effects of population ageing are for international capital flows and how certain countries can export their problems associated with ageing through the capital market. We looked explicitly at Germany and The Netherlands because their pension systems differ in the way they are financed. With an in depth look at the German pension system and the recent reforms, this paper employs an overlapping generations model of Adema (2008) on the situation of The Netherlands and Germany to look at whether such a mechanism might work. A conclusion is that spillover effects because of population ageing in Germany are to be expected in The Netherlands and may be strengthened by the fact that their pension systems differ in their funding. This can be a big threat to the affordability of the Dutch pension arrangement because it works on top of the more common financing problems associated with population ageing.