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Should pensions be progressive?

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  • Fehr, Hans
  • Kallweit, Manuel
  • Kindermann, Fabian

Abstract

The present paper quantitatively characterizes the consequences of rising pension progressivity in an overlapping generations model with idiosyncratic income, disability and longevity risk as well as endogenous labor supply at the intensive and extensive margin. Focusing on the German pension system which is purely earnings related, we increase the degree of progressivity and compute the optimal mix between flat and earnings-related pensions.

Suggested Citation

  • Fehr, Hans & Kallweit, Manuel & Kindermann, Fabian, 2013. "Should pensions be progressive?," European Economic Review, Elsevier, vol. 63(C), pages 94-116.
  • Handle: RePEc:eee:eecrev:v:63:y:2013:i:c:p:94-116
    DOI: 10.1016/j.euroecorev.2013.07.004
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    Cited by:

    1. Vogel, Edgar & Ludwig, Alexander & Börsch-Supan, Axel, 2017. "Aging and pension reform: extending the retirement age and human capital formation," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(01), pages 81-107, January.
    2. Haan, Peter & Kemptner, Daniel & Lüthen, Holger, 2017. "The Rising Longevity Gap by Lifetime Earnings: Distributional Implications for the Pension System," IZA Discussion Papers 11121, Institute for the Study of Labor (IZA).
    3. repec:bpj:bejmac:v:18:y:2018:i:1:p:19:n:2 is not listed on IDEAS
    4. Willem Devriendt & Freddy Heylen, 2017. "Macroeconomic Effects Of Demographic Change In An Olg Model For A Small Open Economy - The Case Of Belgium -," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 17/931, Ghent University, Faculty of Economics and Business Administration.
    5. Hofbauer, Florian & Fehr, Hans, 2016. "Pension reform with entrepreneurial choice," Annual Conference 2016 (Augsburg): Demographic Change 145714, Verein für Socialpolitik / German Economic Association.
    6. András Simonovits, 2015. "Socially optimal contribution rate and cap in a proportional (DC) pension system," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 14(1), pages 45-63, December.
    7. Fehr, Hans & Kallweit, Manuel & Kindermann, Fabian, 2017. "Families and social security," European Economic Review, Elsevier, vol. 91(C), pages 30-56.
    8. Anna Batyra & David de la Croix & Olivier Pierrard & Henri Sneessens, 2016. "Structural changes in the labor market and the rise of early retirement in Europe," CREA Discussion Paper Series 16-13, Center for Research in Economic Analysis, University of Luxembourg.
    9. Ludwig, Alexander, 2016. "Das Deutsche Rentensystem: Thesen zur derzeitigen Diskussion um "Umkehr"-Reformen," SAFE White Paper Series 40, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.
    10. Freddy Heylen & Renaat Van de Kerckhove, 2014. "Heterogeneous ability and the effects of fiscal policy on employment, income and welfare in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/898, Ghent University, Faculty of Economics and Business Administration.
    11. repec:eee:poleco:v:48:y:2017:i:c:p:104-127 is not listed on IDEAS
    12. repec:gam:jsusta:v:10:y:2018:i:4:p:1186-:d:141119 is not listed on IDEAS
    13. Alessandro Bucciol & Laura Cavalli & Igor Fedotenkov & Paolo Pertile & Veronica Polin & Nicola Sartor & Alessandro Sommacal, 2014. "A large scale OLG model for France, Italy and Sweden: assessing the interpersonal and intrapersonal redistributive effects of public policies," Working Papers 07/2014, University of Verona, Department of Economics.
    14. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314, April.
    15. Hans Fehr & Martin Werding & Axel Börsch-Supan & Alfred Boss & Jörg Asmussen & Enzo Weber & Markus Kurth, 2014. "Geplante Rentenreform: Größere Gerechtigkeit oder falsches Signal?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 67(05), pages 03-25, March.
    16. Rostam-Afschar, Davud & Yao, Jiaxiong, 2017. "Consumption Insurance, Welfare, and Optimal Progressive Taxation," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168179, Verein für Socialpolitik / German Economic Association.
    17. Fehr, Hans & Uhde, Johannes, 2014. "Means-testing and economic efficiency in pension design," Economic Modelling, Elsevier, vol. 44(S1), pages 57-67.
    18. Nick Draper & André Nibbelink & Johannes Uhde, 2013. "An Assessment of Alternatives for the Dutch First Pension Pillar, The Design of Pension Schemes," CPB Discussion Paper 259, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Heer Burkhard, 2018. "Optimal pensions in aging economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-19, January.
    20. Fehr, Hans & Kindermann, Fabian, 2015. "Taxing capital along the transition—Not a bad idea after all?," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 64-77.
    21. Nick Draper & André Nibbelink & Johannes Uhde, 2015. "An Assessment of Alternatives for the Dutch First Pension Pillar System," De Economist, Springer, vol. 163(3), pages 281-302, September.
    22. Westerhout, Ed, 2018. "Paying for the Ageing Crisis : Who, How and When?," Discussion Paper 2018-001, Tilburg University, Center for Economic Research.

    More about this item

    Keywords

    Stochastic OLG model; Tax-benefit linkage; Endogenous retirement; Intra-generational risk sharing; Old-age poverty;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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