Pension reform and wealth inequality: Theory and evidence

A growing literature explores reasons for rising wealth inequality, but is mostly silent on the role of pension systems despite their well -understood influence on life -cycle savings. This paper develops a simple life -cycle model to lay bare the primary theoretical mechanisms connecting pension systems, asset accumulation, and the wealth distribution. Mandated fully -funded plans transform individuals with lower incomes, often characterized as low savers, into asset owners, and may also imply a more equal wealth distribution than pay -as -you -go -based systems. To test the empirical validity of these predictions, the paper explores a pension reform in Denmark, a country that witnessed declining wealth inequality over the last decades. In a calibrated lifecycle model employing unique register data, the Danish pension reform emerges as a key factor explaining the downward trend in wealth inequality.