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Is There a Social Security Tax Wedge?

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  • Cigno, Alessandro

    ()
    (University of Florence)

Abstract

A Beveridgean pension scheme invariably introduces a wedge between the wage rate and the marginal take-home pay. A Bismarckian one can do so only if it is not actuarially fair, or in the presence of credit rationing. Interestingly, if the two possible sources of distortion are present at the same time, they will tend to offset each other. The distortion may even change sign (the wedge may become a premium). In any case, the same pension contribution will discourage labour less if the scheme is Bismarckian, than if it is Beveridgean.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1967.

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Length: 11 pages
Date of creation: Feb 2006
Date of revision:
Publication status: published in: Labour Economics, 2008, 15 (1), 68-77
Handle: RePEc:iza:izadps:dp1967

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Keywords: public pensions; Beveridge; Bismarck; tax wedge; implicit pension tax; labour;

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References

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  1. Eytan Sheshinski, 1977. "A Model of Social Security and Retirement Decisions," NBER Working Papers 0187, National Bureau of Economic Research, Inc.
  2. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  3. Cigno, Alessandro & Rosati, Furio C., 1996. "Jointly determined saving and fertility behaviour: Theory, and estimates for Germany, Italy, UK and USA," European Economic Review, Elsevier, vol. 40(8), pages 1561-1589, November.
  4. Del Boca, Daniela & Lusardi, Annamaria, 2002. "Credit Market Constraints and Labor Market Decisions," IZA Discussion Papers 598, Institute for the Study of Labor (IZA).
  5. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December.
  6. Borsch-Supan, Axel & Reil-Held, Anette, 2001. " How Much Is Transfer and How Much Is Insurance in a Pay-As-You-Go System? The German Case," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(3), pages 505-24, September.
  7. Robert Fenge & Martin Werding, 2003. "Ageing and the Tax Implied in Public Pension Schemes: Simulations for Selected OECD Countries," CESifo Working Paper Series 841, CESifo Group Munich.
  8. Alessandro Cigno & Luca Casolaro & Furio C. Rosati, 2002. "The Impact of Social Security on Saving and Fertility in Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(2), pages 189-, May.
  9. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  10. Murphy, Kevin M & Welch, Finis, 1998. "Perspectives on the Social Security Crisis and Proposed Solutions," American Economic Review, American Economic Association, vol. 88(2), pages 142-50, May.
  11. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
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Citations

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Cited by:
  1. Ben J. Heijdra & Jenny Ligthart, 2006. "Fiscal Policy, Monopolistic Competition, and Finite Lives," CESifo Working Paper Series 1661, CESifo Group Munich.
  2. Gilles Le Garrec, 2012. "Social security and growth in an agin economy: the case of actuarial fairness," Documents de Travail de l'OFCE 2012-18, Observatoire Francais des Conjonctures Economiques (OFCE).
  3. Alessandro Cigno, 2009. "How to Avoid a Pension Crisis: A Question of Intelligent System Design," CESifo Working Paper Series 2590, CESifo Group Munich.
  4. Fisher, Walter H. & Keuschnigg, Christian, 2011. "Life-Cycle Unemployment, Retirement, and Parametric Pension Reform," Economics Series 267, Institute for Advanced Studies.
  5. Carone, Giuseppe & Nicodème, Gaëtan & Schmidt, Jan, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," MPRA Paper 3996, University Library of Munich, Germany.
  6. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hi6860cc6 is not listed on IDEAS
  7. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and the return to education: lessons for the social security reform," Sciences Po publications 2011-18, Sciences Po.
  8. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and return to education ; lessons for the social security reform," Documents de Travail de l'OFCE 2011-18, Observatoire Francais des Conjonctures Economiques (OFCE).
  9. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
  10. Carlos Vidal-Meli� & María del Carmen Boado-Penas, 2013. "Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1303-1320, April.

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