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Optimal Cap on Pension Contributions

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  • Andras Simonovits

    ()
    (Institute of Economics Research Center for Economic and Regional Studies Hungarian Academy of Sciences Mathematical Institute of Budapest University of Technology Department of Economics of CEU)

Abstract

In our model, the government operates a mandatory proportional (contributive) pension system to substitute for the low life-cycle savings of the low-paid myopes. The socially optimal contribution rate is high (equalizing young- and old-age consumption for them), while an appropriate cap on pension contributions makes room for the saving of high-paid far-sighted workers. In our parameterization (with a Pareto earning distribution), the optimal cap can be determined but its aggregate impact is negligible.

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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 1208.

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Length: 21 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:has:discpr:1208

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Keywords: pensions; contribution rate; contribution cap; maximum for taxable earnings;

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References

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  1. CASAMATTA, Georges & CREMER , Helmuth & PESTIEAU, Pierre, . "The political economy of social security," CORE Discussion Papers RP -1475, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Ursula Schwarzhaupt & Salvador Valdés-Prieto, 2010. "Optimal Compulsion when Behavioral Biases vary and the State Errs," Documentos de Trabajo 389, Instituto de Economia. Pontificia Universidad Católica de Chile..
  3. Simonovits, András, 2011. "When are voluntary pensions indifferent?," Economics Letters, Elsevier, vol. 111(2), pages 155-157, May.
  4. Zsolt Darvas, 2011. "A tale of three countries: recovery after banking crises," Policy Contributions 663, Bruegel.
  5. Judit Karsai, 2012. "Development of the Hungarian Venture Capital and Private Equity Industry over the Past Two Decades," IEHAS Discussion Papers 1201, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  6. Barr, Nicholas & Diamond, Peter, 2008. "Reforming Pensions: Principles and Policy Choices," OUP Catalogue, Oxford University Press, number 9780195311303, September.
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Cited by:
  1. Simonovits, András, 2013. "Egyszerű paternalista transzfermodellek családja
    [A family of simple paternalistic transfer models]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 402-430.
  2. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," IEHAS Discussion Papers 1324, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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