Underreported Earnings and Old-Age Pension: An Elementary Model
AbstractThis 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 InfoPaper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0805.
Length: 19 pages
Date of creation: May 2008
Date of revision:
reporting earnings; proportional pensions; basic pensions; meansassisted pensions;
Find related papers by JEL classification:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-AGE-2008-07-30 (Economics of Ageing)
- NEP-ALL-2008-07-30 (All new papers)
- NEP-LAB-2008-07-30 (Labour Economics)
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