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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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References

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  1. Breyer, Friedrich, 1994. "The political economy of intergenerational redistribution," European Journal of Political Economy, Elsevier, vol. 10(1), pages 61-84, May.
  2. Harrie Verbon & Marijn Verhoeven, 1992. "Decision making on pension schemes under rational expectations," Journal of Economics, Springer, vol. 56(1), pages 71-97, February.
  3. Friedrich Breyer & Ben Craig, 1995. "Voting on social security: evidence from OECD countries," Working Paper 9511, Federal Reserve Bank of Cleveland.
  4. 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.
  5. 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.
  6. Lex Meijdam & Harrie Verbon, 1996. "Aging and political decision making on public pensions," Journal of Population Economics, Springer, vol. 9(2), pages 141-158, June.
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Citations

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Cited by:
  1. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
  2. Georg Hirte, 2003. "The Political Feasibility of Privatizing Old-Age Insurance," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(4), pages 507-525, 09.
  3. Hollanders, D.A. & Koster, F., 2012. "The Graying of the Median Voter," Discussion Paper 2012-061, Tilburg University, Center for Economic Research.
  4. Friedrich Breyer, 2000. "Kapitaldeckungs- versus Umlageverfahren," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 1(4), pages 383-405, November.
  5. Tim Krieger, 2006. "Public pensions and return migration," Working Papers 2, University of Paderborn, CIE Center for International Economics.
  6. Schnabel, Reinhold, 1997. "Rates of Return of the German Pay-As-You-Go Pension System," Sonderforschungsbereich 504 Publications 98-56, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  7. Makoto Hirazawa & Koji Kitaura & Akira Yakita, 2010. "Aging, fertility, social security and political equilibrium," Journal of Population Economics, Springer, vol. 23(2), pages 559-569, March.
  8. Tim Krieger, 2001. "Intergenerational Redistribution and Labor Mobility: A Survey," Departmental Discussion Papers 106, University of Goettingen, Department of Economics.
  9. Alexander Haupt & Wolfgang Peters, 2001. "Voting on Public Pensions With Hand and Feet: How Young Migrants Try to Escape From Gerontocracy," CESifo Working Paper Series 523, CESifo Group Munich.
  10. Kifmann, Mathias & Schindler, Dirk, 2000. "Demographic changes and the implicit tax rate in a pay-as-you-go pension system," Discussion Papers, Series 1 308, University of Konstanz, Department of Economics.
  11. David Hollanders & Ferry Koster, 2010. "WP 98 - The graying of the median voter," AIAS Working Papers wp98, AIAS, Amsterdam Institute for Advanced Labour Studies.
  12. Paola Profeta, 2002. "Aging and Retirement: Evidence Across Countries," International Tax and Public Finance, Springer, vol. 9(6), pages 651-672, November.
  13. Casamatta, Georges & Gondim, Joao Luis, 2009. "Reforming the Pay-As-You-Go Pension System: Who Votes for it ? When?," TSE Working Papers 09-104, Toulouse School of Economics (TSE).
  14. Montén, Anna & Thum, Marcel, 2010. "Ageing municipalities, gerontocracy and fiscal competition," European Journal of Political Economy, Elsevier, vol. 26(2), pages 235-247, June.
  15. Brasil Gondim, João Luis & Casamatta, Georges, 2008. "Voting on Parametric Reforms of the Pay-As-You-Go Pension System," CEPR Discussion Papers 6993, C.E.P.R. Discussion Papers.
  16. Hetze, Pascal & Ochsen, Carsten, 2005. "How aging of the labor force affects equilibrium unemployment," Thuenen-Series of Applied Economic Theory 57, University of Rostock, Institute of Economics.
  17. Simonovits, Andras, 2007. "Can population ageing imply a smaller welfare state?," European Journal of Political Economy, Elsevier, vol. 23(2), pages 534-541, June.
  18. Pedro Cardoso & Bernard M.S. van Praag, 2003. "How Sustainable Are Old-age Pensions in a Shrinking Population with Endogenous Labour Supply?," CESifo Working Paper Series 861, CESifo Group Munich.
  19. Shimasawa, Manabu & Oguro, Kazumasa & Toyoda, Nao, 2014. "Does Japan have a Gray Democracy? An empirical analysis of prefectural data," CIS Discussion paper series 615, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

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