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Social Security Reform and Investment in Education: Is There Scope for a Pareto Improvement?

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  • MARKO KOTHENBÜRGER
  • PANU POUTVAARA

Abstract

We propose a Pareto-improving policy which reduces the overall wage tax burden in an economy with intergenerational trade in a fixed factor of production, here labelled as land. We analyse a second-best environment in which the government cannot resort to non-distortionary land taxes. Reducing the social security contribution rate encourages investment in human capital. Future efficiency gains accruing to complementary land are capitalized in its value. The capital gains may compensate land-owning pensioners for reduced benefits. We also explain why the unfunded pension system may have lost its appeal even for pensioners after its introduction. Copyright (c) The London School of Economics and Political Science 2006.

Suggested Citation

  • Marko Kothenbürger & Panu Poutvaara, 2006. "Social Security Reform and Investment in Education: Is There Scope for a Pareto Improvement?," Economica, London School of Economics and Political Science, vol. 73(290), pages 299-319, May.
  • Handle: RePEc:bla:econom:v:73:y:2006:i:290:p:299-319
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    Cited by:

    1. Igor Fedotenkov, 2014. "Coordination of Pension Systems When Technologies are Different," CESifo Economic Studies, CESifo, vol. 60(1), pages 246-256.
    2. Andrew Coleman, 2012. "Pension Payments and Receipts by New Zealand Birth Cohorts, 1916–1986," Working Papers 12_11, Motu Economic and Public Policy Research.
    3. Yvonne Adema & Lex Meijdam & Harrie Verbon, 2009. "The international spillover effects of pension reform," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(5), pages 670-696, October.
    4. Marko Koethenbuerger & Panu Poutvaara, 2009. "Rent taxation and its intertemporal welfare effects in a small open economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(5), pages 697-709, October.
    5. Mark A. Roberts, 2013. "Pareto-improving pension reform through technological implementation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(3), pages 317-342, July.
    6. Michael Kaganovich & Itzhak Zilcha, 2008. "Alternative Social Security Systems and Growth," CESifo Working Paper Series 2353, CESifo Group Munich.
    7. Igor Fedotenkov & Lex Meijdam, 2014. "Pension reform with migration and mobile capital: is a Pareto improvement possible?," International Economics and Economic Policy, Springer, vol. 11(3), pages 431-450, September.
    8. Fedotenkov, I., 2012. "Pensions and ageing in a globalizing world. International spillover effects via trade and factor mobility," Other publications TiSEM 8830bc21-4138-4479-8459-a, Tilburg University, School of Economics and Management.

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