Vector Similarity as a Measure for Comparing Pension Systems - An Application to OECD Countries

The purpose of this paper is to compare pension systems across OECD countries to assess their similarity by using the concept of vector similarity. Furthermore, differences between pension systems are explained in a cross-section panel estimation. After constructing one vector for each country's pension system that represents its quality, vector similarity is calculated for each pension system in reference to the German pension system. Using vector similarity as the dependent variable, a cross-section panel estimation is conducted using several demographic and economic factors as explanatory variables. It turns out that differences between pension systems can be significantly explained by the old-age dependency ratio, the fertility rate, the legal retirement age as well as the public gross debt in percent of the gross domestic product