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Demographics and Volatile Social Security Wealth: Political Risks of Benefit Rule Changes in Germany

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  • Christoph Borgmann
  • Matthias Heidler
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    Abstract

    In this paper we address the question how the generosity of the benefit rule of the German public pension system has changed during the past three decades and how this development can be explained by demographic changes. Firstly, we illustrate the political risk of benefit rule changes for individuals. We find that depending on the birth year and the considered scenario the relative losses vary between 30 and nearly 60 percent. Secondly, we estimate how demographic developments have triggered these changes in generosity. Our results suggest that future developments of the old-age dependency ratio have an influence on the determination of generosity.

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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1021.

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    Date of creation: 2003
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    Handle: RePEc:ces:ceswps:_1021

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    Keywords: social security wealth; demography; political economy; Germany;

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    1. Assaf Razin & Efraim Sadka & Phillip Swagel, 2001. "The Aging Population and the Size of the Welfare State," NBER Working Papers 8405, National Bureau of Economic Research, Inc.
    2. John Y. Campbell & Martin Feldstein, 2001. "Risk Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number camp01-1, July.
    3. Bonin, Holger, 2001. "Will it Last? An Assessment of the 2001 German Pension Reform," IZA Discussion Papers 343, Institute for the Study of Labor (IZA).
    4. Martin Werding, 2000. "Rentenreform: Modellrechnungen zu den langfristigen Effekten," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 53(28-29), pages 39-42, November.
    5. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, July.
    6. John McHale, 1999. "The Risk of Social Security Benefit Rule Changes: Some International Evidence," NBER Working Papers 7031, National Bureau of Economic Research, Inc.
    7. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, Elsevier, vol. 18(1), pages 1-29, March.
    8. David Bradford, 1991. "Tax Policy and the Economy, Volume 5," NBER Books, National Bureau of Economic Research, Inc, number brad91-1, July.
    9. Schnabel, Reinhold, 1997. "Rates of Return of the German Pay-As-You-Go Pension System," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 98-56, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    10. Auerbach, Alan J & Gokhale, Jagadeesh & Kotlikoff, Laurence J, 1992. " Generational Accounting: A New Approach to Understanding the Effects of Fiscal Policy on Saving," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(2), pages 303-18.
    11. Hans-Werner Sinn & Marcel Thum, 1999. "Gesetzliche Rentenversicherung: Prognosen im Vergleich," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 56(1), pages 104-140, March.
    12. Sinn, Hans-Werner, 1998. "The Pay-As You-Go Pension System as a Fertility Insurance and Enforcement Device," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2023, C.E.P.R. Discussion Papers.
    13. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
    14. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(1), pages 73-94, Winter.
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    Cited by:
    1. Axel Börsch-Supan & Anette Reil-Held & Christina Benita Wilke, 2003. "How to make a Defined Benefit System Sustainable: The Sustainability Factor in the German Benefit Indexation Formula," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 03037, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    2. Börsch-Supan, Axel, 2005. "Risiken im Lebenszyklus: Theorie und Evidenz," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 05-05, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    3. Heidler, Matthias & Raffelhüschen, Bernd, 2005. "How risky is the German pension system? The volatility of the internal rates of return," FZG Discussion Papers 6, Research Center for Generational Contracts (FZG), University of Freiburg.
    4. Ehrentraut, Oliver & Raffelhüschen, Bernd, 2003. "Die Rentenversicherung unter Reformdruck: Ein Drama in drei Akten," Discussion Papers 109, Institut für Finanzwissenschaft, Albert-Ludwigs-Universität Freiburg.

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