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Compulsory Savings: Efficiency and Redistribution On the Interaction of Means Tested Basic Income and Public Pensions

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  • Robert Fenge

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  • Jakob Weizsäcker

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Abstract

In the presence of means tested basic income for old age, households will tend to reduce precautionary savings to an inefficiently low level. We explore how this might serve as a justification for a compulsory public pension system. In a representative agent framework with two income types, compulsory savings are found to be Pareto-improving up to a point. Beyond that point, increases in contribution rates simply result in increasingly regressive (implicit) taxation. Similar results are found for pay-as-you-go pensions. On the basis of our model we argue that the introduction of a funded pension component may help the German pension system to cope with demographic change more efficiently. Copyright Kluwer Academic Publishers 2001

Suggested Citation

  • Robert Fenge & Jakob Weizsäcker, 2001. "Compulsory Savings: Efficiency and Redistribution On the Interaction of Means Tested Basic Income and Public Pensions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 637-652, August.
  • Handle: RePEc:kap:itaxpf:v:8:y:2001:i:4:p:637-652
    DOI: 10.1023/A:1011288906838
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    References listed on IDEAS

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    Cited by:

    1. Jakob von Weizsäcker & Martin Werding, 2002. "Demographiefest: Rentenfinanzen und Lebenserwartung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 55(11), pages 42-45, June.
    2. Jakob von Weizsäcker, 2003. "The Hayek Pension: An efficient minimum pension to complement the welfare state," CESifo Working Paper Series 1064, CESifo Group Munich.

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