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Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?

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  • Marko Koethenbuerger
  • Panu Poutvaara

    ()

Abstract

In earlier literature, the suggested Pareto improvements in pay-as-you-go (PAYG) systems have relied on the presence of externalities or the possibility of intragenerational redistribution. We show that neither assumption is necessary in an economy with intergenerational trade in a fixed factor of production, here labeled as land. Reducing the social security tax rate encourages investment in complementary human capital. Future efficiency gains accruing to land are capitalized in its value which compensates the land-owning pensioners for reduced benefits. We also explain why the PAYG system may have lost its appeal even for pensioners after its introduction.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 795.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_795

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Keywords: social security reform; fixed factor; pay-as-you-go system; capital gains taxation;

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References

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Cited by:
  1. Koethenbuerger, Marko & Poutvaara, Panu, 2009. "Rent taxation and its intertemporal welfare effects in a small open economy," Munich Reprints in Economics 19461, University of Munich, Department of Economics.
  2. Yvonne Adema & Lex Meijdam & Harrie A. A Verbon, 2005. "The International Spillover Effects of Pension Reform," CESifo Working Paper Series 1540, CESifo Group Munich.

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