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Why a Funded Pension System is Needed and Why It is Not Needed

  • Hans-Werner Sinn

Based on explicit presentvalue calculations, the paper criticizes the view that the PAYGOsystem wastes economic resources. In present value terms, thereis nothing to be gained from a transition to a funded systemeven though the latter offers a permanently higher rate of return.The sum of the implicit and explicit tax burdens that resultfrom the need to respect the existing pension claims is the sameunder all systems and transition strategies. Nevertheless a partialtransition to a funded system may be a way to overcome the currentdemographic crisis because it replaces missing human capitalwith real capital and helps smooth tax and child rearing costsacross the generations. Copyright Kluwer Academic Publishers 2000

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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 4 (August)
Pages: 389-410

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:4:p:389-410
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  1. Homburg, Stefan, 1997. "Old-age Pension Systems: A Theoretical Evaluation," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 233-246.
  2. Brunner, Johann K., 1996. "Transition from a pay-as-you-go to a fully funded pension system: The case of differing individuals and intragenerational fairness," Journal of Public Economics, Elsevier, vol. 60(1), pages 131-146, April.
  3. Konrad Kai A. & Olsen Trond E. & Schob Ronnie, 1994. "Resource Extraction and the Threat of Possible Expropriation: The Role of Swiss Bank Accounts," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 149-162, March.
  4. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  5. Laurence J. Kotlikoff, 1996. "Simulating the Privatization of Social Security in General Equilibrium," NBER Working Papers 5776, National Bureau of Economic Research, Inc.
  6. Homburg, Stefan, 1990. "The Efficiency of Unfunded Pension Schemes," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 640-647.
  7. Hans-Werner Sinn, 1998. "The Pay-As-You-Go Pension System as a Fertility Insurance and Enforcement Device," NBER Working Papers 6610, National Bureau of Economic Research, Inc.
  8. Werding, Martin, 1998. "Zur Rekonstruktion des Generationenvertrages," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 3, number urn:isbn:9783161468896.
  9. Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
  10. Marcel Thum & Jakob von Weisäcker, 2000. "Implizite Einkommensteuer als Messlatte für die aktuellen Rentenreformvorschläge," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 1(4), pages 453-468, November.
  11. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  12. Sinn, Hans-Werner, 1997. "The Value of Children and Immigrants in a Pay-As-You-Go Pension System: A Proposal For a Partial Transition to a Funded System," CEPR Discussion Papers 1734, C.E.P.R. Discussion Papers.
  13. Stefan Homburg, 1991. "Interest and Growth in an Economy with Land," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 450-59, May.
  14. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
  15. Martin Feldstein, 1997. "Transition to a Fully Funded Pension System: Five Economic Issues," NBER Working Papers 6149, National Bureau of Economic Research, Inc.
  16. Matthias Wrede, 1999. "Pareto Efficient Pay-as-You-Go Pension Systems with Multi-Period Lives," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 219(3+4), pages 494-503, September.
  17. Peter A. Diamond (ed.), 1999. "Issues in Privatizing Social Security: Report of an Expert Panel of the National Academy of Social Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041774, June.
  18. Robert Fenge & Jakob von Weizsäcker, 1999. "To what Extent are Public Pensions Pareto-improving? On the Interaction of Means Tested Basic Income and Public Pensions," CESifo Working Paper Series 197, CESifo Group Munich.
  19. Homburg, Stefan & Richter, Wolfram, 1990. "Eine effizienzorientierte Reform der GRV," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 183-191..
  20. Homburg, Stefan, 2000. "Compulsory savings in the welfare state," Journal of Public Economics, Elsevier, vol. 77(2), pages 233-239, August.
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