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Mixing Bismarck and Child Pension Systems:An Optimum Taxation Approach

  • Robert Fenge
  • Jakob von Weizsäcker

The labor-leisure distortion of a pay-as-you-go pension system can be reduced through a stronger tax-benefit link or Bismarck pension system. Distortions of the fertility decision can be reduced through the introduction of a stronger child-benefit or child pension system.Within our optimal taxation framework, we find a Corlett-Hague result regarding the optimal mix of the two: if and only if children are more complementary to leisure should the taxbenefit link be given a positive weight at the expense of the child-benefit link. The model also allows us to examine the infertility insurance argument that may justify redistribution from families with children to those without implied by most pension systems. We find that the opposite redistribution, from the childless to those with children, would be efficient if individuals have low risk aversion. Redistribution in favor of the infertile would only be justified when risk aversion is high.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1751.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1751
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  2. CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, . "Pensions with endogenous and stochastic fertility," CORE Discussion Papers RP 1928, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Munich Reprints in Economics 938, University of Munich, Department of Economics.
  4. BOADWAY, Robin & PESTIEAU, Pierre, . "Indirect taxation and redistribution: the scope of the Atkinson-Stiglitz theorem," CORE Discussion Papers RP 1647, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  7. Cigno, Alessandro & Rosati, Furio C., 1996. "Jointly determined saving and fertility behaviour: Theory, and estimates for Germany, Italy, UK and USA," European Economic Review, Elsevier, vol. 40(8), pages 1561-1589, November.
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  9. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
  10. Robert Fenge & Volker Meier, 2003. "Pensions and Fertility Incentives," CESifo Working Paper Series 879, CESifo Group Munich.
  11. Alessandro Balestrino & Alessandro Cigno & Anna Pettini, 2002. "Endogenous Fertility and the Design of Family Taxation," International Tax and Public Finance, Springer, vol. 9(2), pages 175-193, March.
  12. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
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