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When Will the Germans Get Trapped in their Pension System?

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Author Info
Hans-Werner Sinn
Silke Uebelmesser

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Abstract

The upcoming demographic crisis in Germany demands fundamental reforms of the pension system. In a democracy, reforms are, however, only feasible when they are supported by the majority of the electorate. To determine whether the majority is in favor of reforms of the pension system, we calculate for each year the 'indifference age' as the age of the cohort which is not affected by the reform and the 'median age' as the age of the politically decisive cohort. Until 2023, the median age is below the indifference age implying that the young have the majority and the reform can be democratically enforced. After 2023, Germany will be characterized by a gerontocratic system where the old decide over the young. Only the fear that the young might emigrate and perhaps a certain altruistic attitude towards their own descendants will prevent the old from exploiting the young.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8503.

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Date of creation: Oct 2001
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Handle: RePEc:nbr:nberwo:8503

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Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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  1. Marcel Thum & Jakob von Weisäcker, 2000. "Implizite Einkommensteuer als Messlatte für die aktuellen Rentenreformvorschläge," Perspektiven der Wirtschaftspolitik, Blackwell Publishing, vol. 1(4), pages 453-468, November. [Downloadable!] (restricted)
  2. Hans-Werner Sinn & Marcel Thum, 1999. "Gesetzliche Rentenversicherung: Prognosen im Vergleich," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 104-, March.
  3. Hans-Werner Sinn & Silke Übelmesser, 2000. "Wann kippt Deutschland um?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 53(28-29), pages 20-25, November.
  4. Breyer, Friedrich, 1994. "The political economy of intergenerational redistribution," European Journal of Political Economy, Elsevier, vol. 10(1), pages 61-84, May. [Downloadable!] (restricted)
  5. Vincenzo Galasso, 1999. "The US Social Security System: What Does Political Sustainability Imply?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 698-730, July. [Downloadable!] (restricted)
  6. Butler, Monika, 2000. "The political feasibility of pension reform options: the case of Switzerland," Journal of Public Economics, Elsevier, vol. 75(3), pages 389-416, March. [Downloadable!] (restricted)
  7. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Oxford University Press, vol. 13(3), pages 373-88, September.
  8. Fehr, Hans, 2000. " Pension Reform during the Demographic Transition," Scandinavian Journal of Economics, Blackwell Publishing, vol. 102(3), pages 419-43, June. [Downloadable!] (restricted)
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