A Note on the Tax Rate implicit in Contributions to Pay-as-you-go Public Pension Systems
AbstractThis is a paper about the (wage) tax implicit in contributions to pay-as-you- go pension systems. I begin by addressing the implicit life-cycle tax rate. It is shown that a popular rule of thumb for "back of the envelope" computations of the proportion of pension contributions constituting a tax is flawed. In a highly stylised model, however, simple algebra suffices to compute implicit tax rates, and the results tally well with existing estimates. I then turn to the implicit tax on current wages created by paygo pension systems. Intuition, formal analysis and numerical examples are provided to show that this tax rate is likely to fall through-out a contributor's working life, and that it may in fact become negative. I explain asymmetries between the growth of per capita wages and population growth, which combine to constitute the aggregate rate of return on paygo contributions.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 57 (2000)
Issue (Month): 1 (September)
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Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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Working Papers of the Research Group Heterogenous Labor
04-20, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
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- Friedrich Breyer & Mathias Kifmann, 2004.
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- Robert Fenge & Silke Uebelmesser & Martin Werding, 2002. "Second-best Properties of Implicit Social Security Taxes: Theory and Empirical Evidence," CESifo Working Paper Series 743, CESifo Group Munich.
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