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Demographic change, endogenous labor supply and the political feasibility of pension reform

Author

Listed:
  • Friedrich Breyer

    () (Department of Economics, University of Konstanz, POBox D135, D-78457 Konstanz, Germany)

  • Klaus Stolte

    () (Department of Economics, University of Konstanz, POBox D135, D-78457 Konstanz, Germany)

Abstract

Options for reforming unfunded public pension schemes that are now being discussed all share the feature that the burden induced by demographic change would be shifted towards presently living and away from unborn generations. Existing models of the political economy of pension reform can not explain why such reform options are being discussed at all. We present an alternative model in which the possibility of evasion of workers from payment of social security taxes is taken into account by modelling a labor supply function. It turns out that the burden of demographic change may fall completely or at least predominantly on the pensioners. Thus this type of model can much better explain recent trends in legislature on unfunded public pension systems in industrial democracies.

Suggested Citation

  • Friedrich Breyer & Klaus Stolte, 2001. "Demographic change, endogenous labor supply and the political feasibility of pension reform," Journal of Population Economics, Springer;European Society for Population Economics, vol. 14(3), pages 409-424.
  • Handle: RePEc:spr:jopoec:v:14:y:2001:i:3:p:409-424 Note: Received: 7 January 1999/Accepted: 20 December 1999
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    References listed on IDEAS

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    1. Harrie Verbon & Marijn Verhoeven, 1992. "Decision making on pension schemes under rational expectations," Journal of Economics, Springer, vol. 56(1), pages 71-97, February.
    2. Breyer, Friedrich, 1994. "The political economy of intergenerational redistribution," European Journal of Political Economy, Elsevier, vol. 10(1), pages 61-84, May.
    3. Breyer, Friedrich & Craig, Ben, 1997. "Voting on social security: Evidence from OECD countries," European Journal of Political Economy, Elsevier, pages 705-724.
    4. Lex Meijdam & Harrie Verbon, 1996. "Aging and political decision making on public pensions," Journal of Population Economics, Springer;European Society for Population Economics, pages 141-158.
    5. Meijdam, Lex & Verbon, Harrie A A, 1997. "Aging and Public Pensions in an Overlapping-Generations Model," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 29-42, January.
    6. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-388, September.
    7. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
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    More about this item

    Keywords

    Public pensions · endogenous labor supply · demographic change;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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