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On the Redistributive Power of Pensions

Author

Listed:
  • Philippe Choné

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

  • Guy Laroque

    (UCL - University College of London [London], ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

We study the tradeoff between efficiency and redistribution in a model with overlapping generations, extensive labor supply, and perfect financial markets. The government instruments are a pension scheme and a age-independent nonlinear income tax schedule. At the second-best optimum, the pension system constrains the agents' labor supply behavior, forcing them to work to achieve a required lifetime performance. Income taxes affect labor supply directly, but also indirectly through pension incentives. The indirect effect of taxes counteracts the usual forces in the efficiency-redistribution tradeoff: through the interplay with the pension system, decreasing taxes induces redistribution and reduces productive efficiency.

Suggested Citation

  • Philippe Choné & Guy Laroque, 2018. "On the Redistributive Power of Pensions," SciencePo Working papers Main hal-03915272, HAL.
    • Handle: RePEc:hal:spmain:hal-03915272
    DOI: 10.1007/s00355-017-1094-0
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