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On the redistributive power of pensions

Author

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  • Philippe Choné

    (Universite Parris-Saclay)

  • Guy Laroque

    (University College London
    Sciences-Po)

Abstract

We study the tradeoff between efficiency and redistribution in a model with overlapping generations, extensive labor supply, and perfect financial markets. The government instruments are a pension scheme and a age-independent nonlinear income tax schedule. At the second-best optimum, the pension system constrains the agents’ labor supply behavior, forcing them to work to achieve a required lifetime performance. Income taxes affect labor supply directly, but also indirectly through pension incentives. The indirect effect of taxes counteracts the usual forces in the efficiency-redistribution tradeoff: through the interplay with the pension system, decreasing taxes induces redistribution and reduces productive efficiency.

Suggested Citation

  • Philippe Choné & Guy Laroque, 2018. "On the redistributive power of pensions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(3), pages 519-546, March.
    • Handle: RePEc:spr:sochwe:v:50:y:2018:i:3:d:10.1007_s00355-017-1094-0
    DOI: 10.1007/s00355-017-1094-0
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    References listed on IDEAS

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