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Competition between unfunded systems: A European Union challenge

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  • Gabrielle Demange

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

Most European countries have set up a mandatory unfunded pension scheme, often called first pillar, financed through contributions levied on wages. Although this common characteristic is crucial, the systems significantly differ in many aspects. Most importantly they differ in the level of the contribution rate and in the benefit rule that determines the redistribution performed by the system, ranging from ”Bismarckian” system to ”Beveridgean” one. Currently the minimal contributing period necessary to give pension rights is long, thereby limiting the ”portability” of the systems. This limitation constitutes a barrier to workers’mobility, which may slow down labor integration, a major objective of the European Union. There are various ways to diminish the impact of such barriers. One is harmonization. Given the current differences in the systems and the problems of transition, agreement on a common system or even on steps toward convergence can only be slow. Another somewhat indirect but potentially powerful way to influence social security systems is ”free choice”. By free choice, I mean to let any EU citizen to choose the system of any EU country without moving. Owing to the differences in the social security taxes and the benefit rules, free choice could trigger a drastic change in the allocation of individuals between the various systems.Would all systems survive ? What would be the impact on efficiency, redistribution, and ultimately on citizens welfare ? This paper aims to discuss these questions.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Gabrielle Demange, 2008. "Competition between unfunded systems: A European Union challenge," Post-Print halshs-00576805, HAL.
    • Handle: RePEc:hal:journl:halshs-00576805
    DOI: 10.1057/pm.2008.25
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    References listed on IDEAS

    as
    1. Georges de Menil & Robert Fenge & Pierre Pestieau, 2008. "Pension Strategies in Europe and the United States," Post-Print halshs-00754865, HAL.
    2. Gabrielle Demange, 2008. "Free Choice of Unfunded Systems: A Preliminary Analysis of a European Union challenge," Post-Print halshs-00576790, HAL.
    3. Georges Casamatta & Helmuth Cremer & Pierre Pestieau, 2000. "The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, September.
    4. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2001. "The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 321-370, National Bureau of Economic Research, Inc.
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    7. Edward Whitehouse, 2003. "The Value of Pension Entitlements: A Model of Nine OECD Countries," OECD Social, Employment and Migration Working Papers 9, OECD Publishing.
    8. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. " The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, June.
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    More about this item

    Keywords

    unfunded systems; intra-generational redistribution; free choice;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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