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Ageing and the tax implied in public pension schemes: simulations for selected OECD countries

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Author Info
Robert Fenge
Martin Werding

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Abstract

A key figure suited to measuring intergenerational imbalances in unfunded public pension schemes is given by the 'implicit tax rate' imposed on each generation's lifetime income. The implicit tax arises from the fact that, quite generally, pension benefits fall short of actuarial returns to contributions paid to these systems while actively working. Under current pension policies, implicit tax rates will increase sharply for younger generations in most industrialised countries. In this paper, this is illustrated for the cases of France, Germany, Italy, Japan, Sweden, the UK and the USA. Nevertheless, there are remarkable differences across countries regarding both the level of implicit taxes and their development over successive age cohorts, which can be attributed to differences in ageing processes and in the institutional features of national pension systems. In addition, we can demonstrate how effective different approaches to pension reform are in smoothing the intergenerational profile of implicit tax rates.

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Publisher Info
Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 25 (2004)
Issue (Month): 2 (June)
Pages: 159-200
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Handle: RePEc:ifs:fistud:v:25:y:2004:i:2:p:159-200

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Related research
Keywords: public pensions; tax and benefit system; intergenerational profile;

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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.:
  1. Pier Marco Ferraresi & Elsa Fornero, 2000. "Social Security Transition in Italy: Costs, Distorsions and (some) Possible Corrections," CeRP Working Papers 02, Center for Research on Pensions and Welfare Policies, Turin (Italy). [Downloadable!]
  2. Robert Fenge & Martin Werding, 2003. "Ageing and Fiscal Imbalances Across Generations: Concepts of Measurement," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October. [Downloadable!] (restricted)
  4. Robert Holzmann & Robert Palacios & Asta Zviniene, 2001. "On the Economics and Scope of Implicit Pension Debt: An International Perspective," Empirica, Springer, vol. 28(1), pages 97-129, March. [Downloadable!] (restricted)
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  7. Massimo Baldini & Paolo Onofri & Carlo Mazzaferro, 2002. "The Reform of Italian Pension System and its Effects on Saving Behaviour," Center for the Analysis of Public Policies (CAPP) 0013, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
  8. Edward Palmer, 2002. "Swedish Pension Reform: How Did It Evolve, and What Does It Mean for the Future?," NBER Chapters, in: Social Security Pension Reform in Europe, pages 171-210 National Bureau of Economic Research, Inc. [Downloadable!]
  9. Hans-Werner Sinn & Martin Werding, 2000. "Rentenniveausenkung und Teilkapitaldeckung - ifo Empfehlungen zur Konsolidierung des Umlageverfahrens," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 53(18), pages 12-25, 06.
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  13. Deborah Roseveare & Willi Leibfritz & Douglas Fore & Eckhard Wurzel, 1996. "Ageing Populations, Pension Systems and Government Budgets: Simulations for 20 OECD Countries," OECD Economics Department Working Papers 168, OECD, Economics Department. [Downloadable!]
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    Other versions:
  16. Gary Burtless, 2001. "The Rationale for Fundamental Pension Reform in Germany and the United States: An Assessment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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. Walter H. Fisher & Christian Keuschnigg, 2007. "Pension Reform and Labor Market Incentives," University of St. Gallen Department of Economics working paper series 2007 2007-13, Department of Economics, University of St. Gallen. [Downloadable!]
    Other versions:
  2. Robert Fenge & Martin Werding, 2003. "Ageing and Fiscal Imbalances Across Generations: Concepts of Measurement," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Martin Werding, 2005. "Survivor Benefits and the Gender Tax-Gap inPublic Pension SchemesWork Incentives and Options for Reform," Ifo Working Paper Series Ifo Working Paper No.7, Ifo Institute for Economic Research at the University of Munich. [Downloadable!]
  4. Heikki Oksanen, 2005. "Actuarial Neutrality across Generations Applied to Public Pensions under Population Ageing: Effects on Government Finances and National Saving," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & John Kay & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2005. "Chapter 4: Pensions and Children," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 69-101, 03. [Downloadable!]
  6. Rydell, Ingrid, 2005. "Equity, Justice, Interdependence: Intergenerational Transfers and the Ageing Population," Arbetsrapport 2005:5, Institute for Futures Studies. [Downloadable!]
  7. Martin Werding, 2005. "Survivor Benefits and the Gender Tax Gap in Public Pension Schemes: Observations from Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Jaag, Christian / Keuschnigg, Christian / Keuschnigg, Mirela, 2007. "Pension Reform, Retirement and Life-Cycle Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. Markus Knell, 2005. "On the Design of Sustainable and Fair PAYG Pension Systems When Cohort Sizes Change," Working Papers 95, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  10. Hans-Werner Sinn, 2005. "Europe’s Demographic Deficit A Plea For A Child Pension System," De Economist, Springer, vol. 153(1), pages 1-45, December. [Downloadable!] (restricted)
  11. Sinn, Hans-Werner, 2005. "Europe's Demographic Deficit," Discussion Papers in Economics 934, University of Munich, Department of Economics. [Downloadable!]
  12. Elschner, Christina & Schwager, Robert, 2004. "A Simulation Method to Measure the Tax Burden on Highly Skilled Manpower," ZEW Discussion Papers 04-59, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  13. Verbist G, 2005. "Replacement Incomes And Taxes: A Distributional Analysis For The EU 15 Countries," EUROMOD Working Papers EM2/05, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
  14. Christina Elschner & Robert Schwager, 2006. "A Simulation Method to Measure the Tax Burden on Highly Skilled Manpower," cege – Center for European, Governance and Economic Development Research Discussion Papers 50, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
  15. Heikki Oksanen, 2004. "Public Pensions in the National Accounts and Public Finance Targets," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  16. Marko Köthenbürger & Panu Poutvaara & Paola Profeta, 2005. "Why are More Redistributive Social Security Systems Smaller? A Median Voter Approach," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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