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Is There a Social Security Tax Wedge?

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  • Cigno, Alessandro

    (University of Florence)

Abstract

A Beveridgean pension scheme invariably introduces a wedge between the wage rate and the marginal take-home pay. A Bismarckian one can do so only if it is not actuarially fair, or in the presence of credit rationing. Interestingly, if the two possible sources of distortion are present at the same time, they will tend to offset each other. The distortion may even change sign (the wedge may become a premium). In any case, the same pension contribution will discourage labour less if the scheme is Bismarckian, than if it is Beveridgean.

Suggested Citation

  • Cigno, Alessandro, 2006. "Is There a Social Security Tax Wedge?," IZA Discussion Papers 1967, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1967
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    References listed on IDEAS

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    Cited by:

    1. Gilles Le Garrec, 2015. "Increased longevity and social security reform: questioning the optimality of individual accounts when education matters," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(2), pages 329-352, April.
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    3. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09hi6860cc6 is not listed on IDEAS
    4. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and the return to education: lessons for the social security reform," SciencePo Working papers Main hal-01069511, HAL.
    5. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
    6. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
    7. Gustafsson, Johan, 2023. "Public pension reform with ill-informed individuals," Economic Modelling, Elsevier, vol. 121(C).
    8. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
    9. Keuschnigg, Christian & Fisher, Walter, 2011. "Life-Cycle Unemployment, Retirement and Parametric Pension Reform," Economics Working Paper Series 1119, University of St. Gallen, School of Economics and Political Science.
    10. Antonis Adam, 2007. "Pension Benefits, Labour Market Institutions, and Unemployment," LABOUR, CEIS, vol. 21(4‐5), pages 595-610, December.
    11. Gilles Le Garrec, 2012. "Social security and growth in an aging economy : the case of acturial fairness," SciencePo Working papers Main hal-01070354, HAL.
    12. Alessandro Cigno, 2010. "How to Avoid a Pension Crisis: A Question of Intelligent System Design ," CESifo Economic Studies, CESifo Group, vol. 56(1), pages 21-37, March.
    13. Gustafsson, Johan, 2021. "Public Pension Reform and the Equity-Efficiency Trade-off," Umeå Economic Studies 992, Umeå University, Department of Economics.
    14. repec:spo:wpmain:info:hdl:2441/53r60a8s3kup1vc9jiq0m4pg6 is not listed on IDEAS
    15. Cigno, A., 2016. "Conflict and Cooperation Within the Family, and Between the State and the Family, in the Provision of Old-Age Security," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 609-660, Elsevier.
    16. Gustafsson, Johan, 2021. "Implications of Pension Illiteracy for Labor Supply and Redistribution," Umeå Economic Studies 993, Umeå University, Department of Economics.
    17. Giuseppe Carone & Jan Host Schmidt & Gaetan Nicodeme, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," European Economy - Economic Papers 2008 - 2015 280, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    18. Carlos Vidal-Meliá & Mar𨁤el Carmen Boado-Penas, 2013. "Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1303-1320, April.
    19. Devriendt, Willem & Heylen, Freddy & Jacobs, Arthur, 2023. "Coping with demographic change: macroeconomic performance and welfare inequality effects of public pension reform," Journal of Pension Economics and Finance, Cambridge University Press, vol. 22(3), pages 425-449, July.
    20. Yohei Sekiguchi & Masatoshi Jinno, 2018. "Beveridge Versus Bismarck Pension Systems: Considering Fertility Rates And Skill Distribution," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(05), pages 1141-1153, December.
    21. Frank N. Caliendo & T. Scott Findley, 2020. "Myopia, education, and social security," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 694-720, June.
    22. Gilles Le Garrec, 2012. "Social security and growth in an aging economy : the case of acturial fairness," Working Papers hal-01070354, HAL.
    23. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09hi6860cc6 is not listed on IDEAS
    24. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hi6860cc6 is not listed on IDEAS
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    More about this item

    Keywords

    public pensions; Beveridge; Bismarck; tax wedge; implicit pension tax; labour;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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