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Demographic Change, Endogenous Labor Supply and the Political Feasibility of Pension Reform

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  • Friedrich Breyer
  • Klaus Stolte

Abstract

Options for reforming unfunded public pension schemes that are now being discussed all share the feature that the burden induced by demographic change would be shifted towards presently living and away from unborn generations. Existing models of the political economy of pension reform can not explain why such reform options are being discussed at all. We present an alternative model in which the possibility of evasion of workers from payment of social security taxes is taken into account by modelling a labor supply function. It turns out that the burden of demographic change may fall completely or at least predominantly on the pensioners. Thus this type of model can much better explain recent trends in legislature on unfunded public pension systems in industrial democracies.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38650.de/dp202.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 202.

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Length: 19 p.
Date of creation: 2000
Date of revision:
Handle: RePEc:diw:diwwpp:dp202

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  1. Harrie Verbon & Marijn Verhoeven, 1992. "Decision making on pension schemes under rational expectations," Journal of Economics, Springer, vol. 56(1), pages 71-97, February.
  2. Meijdam, A.C. & Verbon, H.A.A., 1996. "Aging and political decision making on public pensions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-72302, Tilburg University.
  3. Breyer, Friedrich, 1994. "The political economy of intergenerational redistribution," European Journal of Political Economy, Elsevier, vol. 10(1), pages 61-84, May.
  4. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  5. Breyer, Friedrich & Craig, Ben, 1997. "Voting on social security: Evidence from OECD countries," European Journal of Political Economy, Elsevier, vol. 13(4), pages 705-724, December.
  6. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
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