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Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?

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Author Info
Marko Koethenbuerger ()
Panu Poutvaara ()

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Abstract

In earlier literature, the suggested Pareto improvements in pay-as-you-go (PAYG) systems have relied on the presence of externalities or the possibility of intragenerational redistribution. We show that neither assumption is necessary in an economy with intergenerational trade in a fixed factor of production, here labeled as land. Reducing the social security tax rate encourages investment in complementary human capital. Future efficiency gains accruing to land are capitalized in its value which compensates the land-owning pensioners for reduced benefits. We also explain why the PAYG system may have lost its appeal even for pensioners after its introduction.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 795.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_795

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Related research
Keywords: social security reform; fixed factor; pay-as-you-go system; capital gains taxation;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  3. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
    Other versions:
  4. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February. [Downloadable!] (restricted)
  5. CREMER, Helmuth & PESTIEAU, Pierre, 2002. "The Double Dividend of Postponing Retirement," IDEI Working Papers 144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003. [Downloadable!]
    Other versions:
  6. Axel H. Boersch-Supan & Joachim K. Winter, 2001. "Population Aging, Savings Behavior and Capital Markets," NBER Working Papers 8561, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier. [Downloadable!] (restricted)
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    Other versions:
  10. Corsetti, Giancarlo & Schmidt-Hebbel, Klaus, 1995. "Pension reform and growth," Policy Research Working Paper Series 1471, The World Bank. [Downloadable!]
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  12. David Miles & Allan Timmermann, 1999. "Risk sharing and transition costs in the reform of pension systems in Europe," Economic Policy, CEPR, CES, MSH, vol. 14(29), pages 251-286, October. [Downloadable!] (restricted)
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    Other versions:
  16. Boadway, Robin W & Wildasin, David E, 1989. "A Median Voter Model of Social Security," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 307-28, May. [Downloadable!] (restricted)
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  17. Martin Feldstein & Andrew Samwick, 1996. "The Transition Path in Privatizing Social Security," NBER Working Papers 5761, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. BELAN, Pascal & PESTIEAU, Pierre, 1997. "Privatizing social security: a critical assessment," CORE Discussion Papers 1997084, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Other versions:
  22. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November. [Downloadable!] (restricted)
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  24. Gábor Gyárfás & Marko Marquardt, 2001. "Pareto improving transition from a pay-as-you-go to a fully funded pension system in a model of endogenous growth," Journal of Population Economics, Springer, vol. 14(3), pages 445-453. [Downloadable!] (restricted)
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  28. Pascal Belan & Pierre Pestieau, 1999. "Privatizing Social Security: A Critical Assessment," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan Journals, vol. 24(1), pages 114-130, January. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yvonne Adema & Lex Meijdam & Harrie A. A Verbon, 2005. "The International Spillover Effects of Pension Reform," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Koethenbuerger, Marko / Poutvaara, Panu, 2007. "Rent Taxation and its Intertemporal Welfare Effects in a Small Open Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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