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Is an unfunded social security system good or bad for growth? A theoretical analysis of social security systems financed by VAT

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  • Maebayashi, Noritaka

Abstract

This study investigates (i) how unfunded public pensions financed by VAT, as discussed in Japan, affect economic growth, and (ii) whether payroll tax or VAT is the more growth-friendly tax structure for the finance of public pensions. We examine these issues in overlapping generations (OLG) models with parental altruism and find the following results. A public pension system financed by VAT itself may increase economic growth when bequests are operative. By contrast, when bequests are inoperative, public pensions hinder growth unless agents are sufficiently patient. Finally, public pensions financed by VAT have turned out to be more growth-friendly than those financed by payroll tax when bequests are operative.

Suggested Citation

  • Maebayashi, Noritaka, 2018. "Is an unfunded social security system good or bad for growth? A theoretical analysis of social security systems financed by VAT," MPRA Paper 90881, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90881
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    References listed on IDEAS

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    More about this item

    Keywords

    Public pensions financed by VAT; Altruism; Education; Bequests; Growth;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I20 - Health, Education, and Welfare - - Education - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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