The Pension Reform in Russia: Assessing and Enforcing its Underlying Premise

In 2018 Russian government initiated a pension reform – gradual increase in the retirement age, which main purpose was to increase the employment among elderly people and boost the growth of GDP, eliminating the approaching issue of aging population. However, the reform is considered controversial: it is indeed projected to positively impact the Russian economy, but at the same time many people doubt the underlying assumption - elderly people surviving and being economically active until they reach the retirement age and being healthy enough to benefit from pension. Hence, to make the assumption more viable, one may propose human capital investment – particularly, increase in healthcare expenditures on elderly people. The two-period discrete OLG model with public sector and endogenous mortality will be calibrated under the Russian case to study, how the increase in public healthcare expenditures affects the economy. Specifically, due to interdependence of generations, increase in expenditures for the sake of one generation may have negative consequences for the other. The model analyzes the impact of expenditures increase obtained with the changes in the proportion of per-capita output spent. Findings suggest the increase in proportion of per-capita output spent on elderly people negatively affects the welfare of younger cohorts, mainly due to the public debt increase to finance the expenditures.