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The welfare effects of pay-as-you-go retirement programs: the role of tax and benefit timing

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  • Alan D. Viard

Abstract

It is well known that pay-as-you-go retirement programs reduce steady-state welfare and the capital stock in dynamically efficient OLG economies. The common two-period OLG model obscures, however, the dependence of these effects on the ages at which taxes are paid and benefits are received. Program changes that shift taxes to older workers or benefits to younger retirees have effects similar to reductions in program size, yielding steady-state welfare gains and increases in capital accumulation while imposing transition costs on current generations. This analysis has policy implications for both tax and benefit timing.

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  • Alan D. Viard, 2006. "The welfare effects of pay-as-you-go retirement programs: the role of tax and benefit timing," Working Papers 0602, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:0602
    Note: Published as: Viard, Alan D. (2007), "The Welfare Effects of Pay-as-You-Go Retirement Programs: The Role of Tax and Benefit Timing," Contemporary Economic Policy 25 (2): 282-292.
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    More about this item

    Keywords

    Social security; Fiscal policy; Taxation;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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