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Population Aging, Social Security and Fiscal Limits

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  • Burkhard Heer
  • Vito Polito
  • Michael Wickens
  • Michael R. Wickens

Abstract

We study the sustainability of pension systems using a life-cycle model with distortionary taxation that sets an upper limit to the real value of tax revenues. This limit implies an endogenous threshold dependency ratio, i.e. a point in the cross-section distribution of the population beyond which tax revenues can no longer sustain the planned level of transfers to retirees. We quantify the threshold using a computable life-cycle model calibrated on the United States and fourteen European countries which have dependency ratios among the highest in the world. We examine the effects on the threshold and welfare of a number of policies often advocated to improve the sustainability of pension systems. New tax data on dynamic Laffer effects are provided.

Suggested Citation

  • Burkhard Heer & Vito Polito & Michael Wickens & Michael R. Wickens, 2018. "Population Aging, Social Security and Fiscal Limits," CESifo Working Paper Series 7121, CESifo.
  • Handle: RePEc:ces:ceswps:_7121
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    Cited by:

    1. Burkhard Heer & Mark Trede, 2020. "Age-Specific Entrepreneurship and PAYG Public Pensions in Germany," CESifo Working Paper Series 8439, CESifo.
    2. Edouard Ribes, 2021. "How should individuals’ retirement plans adjust to demographic changes?," Working Papers hal-03118783, HAL.
    3. María del Carmen Ramos-Herrera & Simón Sosvilla-Rivero, 2020. "Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries," Sustainability, MDPI, Open Access Journal, vol. 12(24), pages 1-20, December.

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    More about this item

    Keywords

    dependency ratio; fiscal space; Laffer effects; pensions; fiscal policy sustainability;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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