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Underreported Earnings and Old-Age Pension: An Elementary Model

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  • Andras Simonovits

    ()
    (Institute of Economics, Hungarian Academy of Sciences)

Abstract

This paper analyzes the interconnections of underreported earnings, savings and oldage pension with the help of a most simple, elementary model. The workers can be divided into three groups: 1) well-paid who report their full earnings, 2) well-paid who report only the minimum earnings (evaders) and 3) the poorly paid. We assume that the evaders save a significant part of their hidden earnings for their old age. We compare three pension systems of equal size: (i) the proportional, (ii) the proportional plus basic pension and (iii) the proportional with means testing. Our major result is as follows: if the evaders can be recognized and excluded, then the means-tested system is superior to the basic system.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0805.

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Length: 19 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:has:discpr:0805

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Keywords: reporting earnings; proportional pensions; basic pensions; meansassisted pensions;

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References

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  1. repec:nsr:niesrd:283 is not listed on IDEAS
  2. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  3. Disney Richard, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR & CES & MSH, vol. 19(39), pages 267-311, 07.
  4. Mirco, Tonin, 2006. "The Effects of the Minimum Wage in an Economy with Tax Evasion," Seminar Papers 747, Stockholm University, Institute for International Economic Studies.
  5. Clark, Tom & Emmerson, Carl, 2003. "Privatising provision and attacking poverty? The direction of UK Pension Policy under new Labour," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(01), pages 67-89, March.
  6. Gábor Kertei & János Köll?, 2004. "Fighting “Low Equilibria” by Doubling the Minimum Wage ? Hungary’s Experiment," William Davidson Institute Working Papers Series 2004-644, William Davidson Institute at the University of Michigan.
  7. Feldstein, Martin S, 1987. "Should Social Security Benefits Be Means Tested?," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 468-84, June.
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Cited by:
  1. Andras Simonovits, 2009. "Hungarian Pension System and its Reform," IEHAS Discussion Papers 0908, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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