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Public Pension Reform, Demographics, and Inequality

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  • von Weizsäcker, Robert K

Abstract

Starting from a simple, descriptive model of individual income, an explicit link between the age composition of a population and the personal distribution of incomes is established. Demographic effects on income inequality are derived. Next, a pay-as-you-go financed state pension system is introduced. The resulting government budget constraint entails interrelations between fiscal and demographic variables, causing an additional, indirect demographic impact on the distribution. This is shown not only to change, but in some cases even to reverse the distributional incidence of an aging population. Several policy conflicts arise. The point is reemphasized by an analysis of the German Pension Reform Act of 1992. The study reveals that the design of the pension formula decisively drives the relation between demographics and inequality.

Suggested Citation

  • von Weizsäcker, Robert K, 1994. "Public Pension Reform, Demographics, and Inequality," CEPR Discussion Papers 978, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:978
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    More about this item

    Keywords

    Fiscal-Demographic Policy Conflicts; Income Distribution; Old-Age Insurance Reform; Population Aging; Social Policy Design;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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