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Smoothing the Implicit Tax Rate in a Pay-as-you-go Pension System

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  • Mathias Kifman
  • Dirk Schindler

Abstract

In this paper, we analyze how the implicit tax rate can be smoothed in a pay-as-you-go system if life expectancy increases or if the rate of population growth declines. We show that generation-specific contribution or replacement rates are necessary to smooth the implicit tax rate. Partial funding of the pension system is indispensable if the rate of population growth falls. If life expectancy increases, the contribution rate fluctuates and may not converge to a new steady state value unless funded elements are introduced.

Suggested Citation

  • Mathias Kifman & Dirk Schindler, 2001. "Smoothing the Implicit Tax Rate in a Pay-as-you-go Pension System," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(3), pages 261-283, May.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200105)57:3_261:stitri_2.0.tx_2-b
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    1. Thum Marcel & Weizsäcker Jakob von, 2000. "Implizite Einkommensteuer als Messlatte für die aktuellen Rentenreformvorschläge," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 1(4), pages 453-468, November.
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    3. Sinn, Hans-Werner, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," Munich Reprints in Economics 19859, University of Munich, Department of Economics.
    4. Kifmann, Mathias & Schindler, Dirk, 2000. "Demographic changes and the implicit tax rate in a pay-as-you-go pension system," Discussion Papers, Series I 308, University of Konstanz, Department of Economics.
    5. Friedrich Breyer & Klaus Stolte, 2001. "Demographic change, endogenous labor supply and the political feasibility of pension reform," Journal of Population Economics, Springer;European Society for Population Economics, vol. 14(3), pages 409-424.
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    7. Breyer, Friedrich & Kifmann, Mathias & Stolte, Klaus, 1997. "Rentenzugangsalter und Beitragssatz zur Rentenversicherung," Discussion Papers, Series II 332, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    8. Homburg, Stefan & Richter, Wolfram, 1990. "Eine effizienzorientierte Reform der GRV," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 183-191.
    9. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Needed and Why It is Not Needed," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 389-410, August.
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    Cited by:

    1. repec:onb:oenbwp:y::i:95:b:1 is not listed on IDEAS
    2. Heikki Oksanen, 2001. "Pension Reforms for Sustainability and Fairness," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(4), pages 12-18, October.
    3. Friedrich Breyer & Mathias Kifmann, 2004. "The German Retirement Benefit Formula: Drawbacks and Alternatives," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(1), pages 63-82, April.
    4. Breyer, Friedrich, 2001. "Why Funding is not a Solution to the "Social Security Crisis"," IZA Discussion Papers 328, Institute of Labor Economics (IZA).
    5. Heikki Oksanen, 2001. "Pension Reforms for Sustainability and Fairness," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(04), pages 12-18, October.
    6. 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).
    7. Mathias Kifmann, 2001. "Langfristige Folgen einer Einbeziehung der Selbständigen in die gesetzliche Rentenversicherung," Discussion Papers of DIW Berlin 251, DIW Berlin, German Institute for Economic Research.
    8. Breyer, Friedrich & Kifmann, Mathias, 2002. "Incentives to retire later – a solution to the social security crisis?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(2), pages 111-130, July.

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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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