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Is an unfunded social security system good or bad for growth? A theoretical analysis of social security systems financed by VAT

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  • Noritaka Maebayashi

Abstract

This study investigates how unfunded public pensions financed by value added tax (VAT), as discussed in Japan, affect economic growth and whether payroll tax (PT) or VAT is the more growth‐friendly tax structure for financing public pensions. We examine these issues using overlapping generations models with parental altruism and find that a public pension system financed by VAT may increase economic growth when bequests are operative. By contrast, when bequests are inoperative, public pensions hinder growth unless agents are sufficiently patient. Finally, public pensions financed by VAT are more growth‐friendly than those financed by PT.

Suggested Citation

  • Noritaka Maebayashi, 2020. "Is an unfunded social security system good or bad for growth? A theoretical analysis of social security systems financed by VAT," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1069-1104, August.
    • Handle: RePEc:bla:jpbect:v:22:y:2020:i:4:p:1069-1104
    DOI: 10.1111/jpet.12403
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    Cited by:

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    3. Rabah Amir & Helmuth Cremer & Rim Lahmandi‐Ayed, 2020. "Introduction to the thematic issue on government‐provided services," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 839-844, August.

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    More about this item

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I20 - Health, Education, and Welfare - - Education - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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