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Underreported earnings and age-specific income redistribution in post-socialist economies

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  • Andras Simonovits

    (Institute of Economics - Hungarian Academy of Sciences)

Abstract

We analyze underreported earnings and age-specific income redistribution in postsocialist economies. Pensions, other transfers and public expenditures are financed from contributions and wage taxes, respectively. We derive the reported earnings and savings from individual utility maximization, when workers overly discount the future, obtain partial satisfaction from reporting earnings, cannot be excluded from the use of public services. The government maximizes a utilitarian social welfare function, corrected for discounting and taking into account the utility of public services. An optimal proportional pension system - complemented by appropriate means-testing - provides higher welfare than any system containing a significant flat component.

Suggested Citation

  • Andras Simonovits, 2009. "Underreported earnings and age-specific income redistribution in post-socialist economies," CERS-IE WORKING PAPERS 0927, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:0927
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    Cited by:

    1. András Simonovits, 2015. "Socially optimal contribution rate and cap in a proportional (DC) pension system," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 14(1), pages 45-63, December.
    2. Andras Simonovits, 2012. "Optimal linear redistributive tax and pension systems with flexible labor supply," CERS-IE WORKING PAPERS 1233, Institute of Economics, Centre for Economic and Regional Studies.
    3. Andras Simonovits, 2010. "Tax Morality and Progressive Wage Tax," CERS-IE WORKING PAPERS 1005, Institute of Economics, Centre for Economic and Regional Studies.
    4. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," CERS-IE WORKING PAPERS 1324, Institute of Economics, Centre for Economic and Regional Studies.

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    More about this item

    Keywords

    reporting earnings; proportional (contributional) pension; flat pension; progressive wage tax; redistribution;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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