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The Use of Replacement Rates in International Comparisons of Benefit Systems

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  • Peter Whiteford

Abstract

Comparative studies of social security systems have increasingly turned towards the use of replacement rates as measures of the level of benefits in different countries and therefore of the degree of social protection afforded by different welfare systems. The rationale for this is that replacement rates provide consistent measures of the relative generosity of payments and therefore indicate the ‘quality’ of social security systems. This paper reviews the use of replacement rates in comparisons of the generosity of retirement pensions and argues that they are not necessarily reliable as such measures. This reflects a number of factors, including incomplete measurement of benefit packages and differences in what must be bought out of disposable incomes. Most importantly, the paper suggests that the levels of earnings in different countries are not independent of the processes of redistribution. In particular, countries which rely on social security contributions from employers appear to provide more generous benefits than those which rely on income taxes or employee contributions. This is a consequence of the fact that employer contributions do not figure specifically in the calculation of replacement rates. The relative generosity of benefit systems is overstated in countries which rely on employer social security contributions to fund benefits. The paper concludes that a range of complementary indicators of social security systems should be used in future analysis of these issues.

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Bibliographic Info

Paper provided by University of New South Wales, Social Policy Research Centre in its series Discussion Papers with number 0054.

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Length: 40 pages
Date of creation: Jan 1995
Date of revision:
Handle: RePEc:wop:sprcdp:0054

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References

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  1. Gerry Redmond, 1999. "Incomes, incentives and the growth of means-testing in Hungary," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 77-99, March.
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Citations

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Cited by:
  1. Whitehouse, Edward & Queisser, Monika, 2007. "Pensions at a glance: public policies across OECD countries," MPRA Paper 16349, University Library of Munich, Germany.
  2. Cornelisse, Peter & Goudswaard, Kees, 2001. "On the convergence of social protection systems in the European Union," MPRA Paper 21297, University Library of Munich, Germany.
  3. Caroline Dewilde, 2008. "Individual and institutional determinants of multidimensional poverty: A European comparison," Social Indicators Research, Springer, vol. 86(2), pages 233-256, April.
  4. Whitehouse, Edward, 2001. "Pension systems in 15 countries compared: the value of entitlements," MPRA Paper 14751, University Library of Munich, Germany.
  5. Caminada, Koen & Goudswaard, Kees, 2001. "International trends in income inequality and social policy," MPRA Paper 20181, University Library of Munich, Germany.
  6. Nikolay Galabov, 2000. "Expanding the Range of the Assessable Incomes with Individual Income Tax and Decrease of the Tax Burden," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 92-113.
  7. Pedro S. Amaral & Murat Tasci, 2014. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Across OECD Countries," Koç University-TUSIAD Economic Research Forum Working Papers 1405, Koc University-TUSIAD Economic Research Forum.
  8. World Bank, 2002. "Reducing Vulnerability and Increasing Opportunity : Social Protection in the Middle East and North Africa," World Bank Publications, The World Bank, number 14255, October.
  9. Bruce Chapman & James Jordan & Ken Olivier & John Quiggin, 2000. "The Unemployment Trap Meets the Age-Earning Profile," CEPR Discussion Papers 415, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  10. Caminada, Koen & Goudswaard, Kees & Van Vliet, Olaf, 2008. "Patterns of welfare state indicators in the EU: Is there convergence?," MPRA Paper 20177, University Library of Munich, Germany.
  11. Peter Saunders, 1998. "Using Budget Standards to Assess the Well-Being of Families," Discussion Papers 0093, University of New South Wales, Social Policy Research Centre.
  12. Pedro S. Amaral & Murat Tasci, 2012. "The cyclical behavior of equilibrium unemployment and vacancies across OECD countries," Working Paper 1236, Federal Reserve Bank of Cleveland.
  13. Van Vliet, Olaf & Nijboer, Henk, 2012. "Flexicurity in the European Union: flexibility for outsiders, security for insiders," MPRA Paper 37012, University Library of Munich, Germany.
  14. Tony Eardley & Peter Saunders & Ceri Evans, 2000. "Community Attitudes Towards Unemployment, Activity Testing and Mutual Obligation," Discussion Papers 00107, University of New South Wales, Social Policy Research Centre.
  15. Peter Saunders & Cathy Thomson & Ceri Evans, 2000. "Social Change and Social Policy: Results from a Survey of Public Opinion," Discussion Papers 00106, University of New South Wales, Social Policy Research Centre.
  16. Bruce Bradbury, 1999. "Tax Theory and Targeting: A Survey," Discussion Papers 00100, University of New South Wales, Social Policy Research Centre.

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