Demographic changes and the implicit tax rate in a pay-as-you-go pension system
AbstractWe analyze the effects of a permanent increase in life expectancy and of a permanent decline in the rate of population growth on intergenerational redistribution in a pay-as-you-go pension system with a constant contribution or constant replacement rate. We show that under these policies both demographic changes increase the implicit tax rate of later-born generations to the pension system. In addition, we characterize policies which smooth the implicit tax rate. To reach this objective, generation-specific contribution or replacement rates are necessary. Partial funding of the pension system is indispensable if the rate of population growth falls. If life expectancy increases, the contribution rate fluctuates and may not converge to a new steady state value unless funded elements are introduced. --
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Bibliographic InfoPaper provided by University of Konstanz, Department of Economics in its series Discussion Papers, Series 1 with number 308.
Date of creation: 2000
Date of revision:
Pay-as-You-Go; implicit tax rate; life expectancy; population growth;
Find related papers by JEL classification:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
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