IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_743.html
   My bibliography  Save this paper

Second-best Properties of Implicit Social Security Taxes: Theory and Empirical Evidence

Author

Listed:
  • Robert Fenge
  • Silke Uebelmesser
  • Martin Werding

Abstract

This paper investigates the inter-temporal structure of implicit taxes that arise in unfunded pension schemes. We demonstrate that these tax rates are declining over the life cycle. Using German micro-data for men and married women we estimate periodic wage elasticities of labour supply in order to check the second-best properties of this timing of tax rates. An efficient taxation would require to decrease the excessive implicit taxes for married women and to implement an inversely "J-shaped" tax profile for male workers. This result contradicts the standard proposal to smooth the profile of implicit tax rates across the individual life cycle

Suggested Citation

  • Robert Fenge & Silke Uebelmesser & Martin Werding, 2002. "Second-best Properties of Implicit Social Security Taxes: Theory and Empirical Evidence," CESifo Working Paper Series 743, CESifo.
  • Handle: RePEc:ces:ceswps:_743
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/cesifo_wp743.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
    2. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-706, September.
    3. James P. Ziliak & Thomas J. Kniesner, 1999. "Estimating Life Cycle Labor Supply Tax Effects," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 326-359, April.
    4. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-549, September.
    5. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204, Elsevier.
    6. Thomas Siedler & Jürgen Schupp & C. Katharina Spiess & Gert G. Wagner, 2008. "The German Socio-Economic Panel as Reference Data Set," RatSWD Working Papers 48, German Data Forum (RatSWD).
    7. Richard V. Burkhauser & Michaela Kreyenfeld & Gert G. Wagner, 1997. "The German Socio-Economic Panel: A Representative Sample of Reunited Germany and its Parts," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 66(1), pages 7-16.
    8. Hans-Werner Sinn & Martin Werding, 2000. "Rentenniveausenkung und Teilkapitaldeckung - ifo Empfehlungen zur Konsolidierung des Umlageverfahrens," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 53(18), pages 12-25, June.
    9. Brunner, Johann K., 1993. "Redistribution and the efficiency of the pay-as-you-go pension system," Discussion Papers, Series I 265, University of Konstanz, Department of Economics.
    10. repec:bla:econom:v:54:y:1987:i:213:p:89-96 is not listed on IDEAS
    11. Brunner, Johann K., 1996. "Transition from a pay-as-you-go to a fully funded pension system: The case of differing individuals and intragenerational fairness," Journal of Public Economics, Elsevier, vol. 60(1), pages 131-146, April.
    12. James J. Heckman & Thomas MaCurdy, 1982. "Corrigendum on A Life Cycle Model of Female Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 659-660.
    13. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
    14. Casey B. Mulligan, 1999. "Substitution over Time: Another Look at Life-Cycle Labor Supply," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 75-152, National Bureau of Economic Research, Inc.
    15. Klaus Beckmann, 2000. "A Note on the Tax Rate implicit in Contributions to Pay-as-you-go Public Pension Systems," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 63-76, September.
    16. James Heckman, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    17. James J. Heckman & Thomas E. Macurdy, 1980. "A Life Cycle Model of Female Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 47-74.
    18. Marcel Thum & Jakob Von Weisäcker, 2000. "Implizite Einkommensteuer als Messlatte für die aktuellen Rentenreformvorschläge," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 1(4), pages 453-468, November.
    19. repec:jns:jbstat:v:219:y:1999:i:3-4:p:494-503 is not listed on IDEAS
    20. Christian Brinch & Erik Hernæs & Steinar Strøm, 2001. "Labour Supply Effects of an Early Retirement Programme," CESifo Working Paper Series 463, CESifo.
    21. Homburg, Stefan, 1990. "The Efficiency of Unfunded Pension Schemes," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 146, pages 640-647.
    22. Franz, Wolfgang, 1985. "An Economic Analysis of Female Work Participation, Education, and Fertility: Theory and Empirical Evidence for the Federal Republic of Germany," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 218-234, January.
    23. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102, Elsevier.
    24. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-543, May.
    25. Homburg, Stefan & Richter, Wolfram, 1990. "Eine effizienzorientierte Reform der GRV," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 183-191.
    26. Bernhard Boockmann & Viktor Steiner, 2006. "Cohort effects and the returns to education in West Germany," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1135-1152.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2009. "Removing the Disincentives in Social Security for Long Careers," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 21-38, National Bureau of Economic Research, Inc.
    2. Doina Maria Radulescu & Michael Stimmelmayr, 2007. "Fundamentale Steuerreformen für Deutschland: die Unternehmensteuerreform 2008, die Duale Einkommensteuer und die Einheitssteuer im Vergleich," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 76(2), pages 98-116.
    3. Lukach, R. & Plasmans, J.E.J., 2002. "Measuring Knowledge Spillovers using Patent Citations : Evidence from the Belgian Firm's Data," Other publications TiSEM d78bf59a-e0ff-4451-86b9-1, Tilburg University, School of Economics and Management.
    4. Martin Werding, 2005. "Survivor Benefits and the Gender Tax Gap in Public Pension Schemes: Observations from Germany," CESifo Working Paper Series 1596, CESifo.
    5. Martin Werding & Herbert Hofmann, 2005. "The fiscal balance of children in the German tax and social system Study commissioned by the Robert Bosch Foundation," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 27, July.
    6. Doina Radulescu & Michael Stimmelmayr & Doina Maria Radulescu, 2005. "Implementing a Dual Income Tax in Germany: Effects on Investment and Welfare," ifo Working Paper Series 20, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Doina Maria Rădulescu & Michael Stimmelmayr, 2008. "Die Unternehmensteuerreform 2008: Eine Reformalternative für Deutschland?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(1), pages 19-36, February.
    8. Martin Werding, 2005. "Survivor Benefits and the Gender Tax-Gap in Public Pension Schemes Work Incentives and Options for Reform," ifo Working Paper Series 7, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    9. Gopi Shah Goda & John Shoven & Sita Slavov, "undated". "Removing the Disincentives for Long Careers in the Social Security and Medicare Benefit Structure," Discussion Papers 08-058, Stanford Institute for Economic Policy Research.
    10. Rydell, Ingrid, 2005. "Equity, Justice, Interdependence: Intergenerational Transfers and the Ageing Population," Arbetsrapport 2005:5, Institute for Futures Studies.
    11. Doina Radulescu & Michael Stimmelmayr, 2010. "The welfare loss from differential taxation of sectors in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 193-215, April.
    12. Breyer, Friedrich & Franz, Wolfgang & Homburg, Stefan & Schnabel, Reinhold & Wille, Eberhard, 2004. "Reform der sozialen Sicherung: Kurzfassung," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 92399.
    13. Metzger, Christoph, 2016. "The German statutory pension scheme: Balance sheet, cross-sectional internal rates of return and implicit tax rates," FZG Discussion Papers 63, University of Freiburg, Research Center for Generational Contracts (FZG).
    14. Gopi Shah Goda, 2007. "Implicit Social Security Tax Rates over the Life Cycle," Discussion Papers 06-021, Stanford Institute for Economic Policy Research.
    15. Friedrich Breyer & Mathias Kifmann, 2004. "The German Retirement Benefit Formula: Drawbacks and Alternatives," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(1), pages 63-82, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert Fenge & Silke Uebelmesser & Martin Werding, 2006. "On the Optimal Timing of Implicit Social Security Taxes Over the Life Cycle," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(1), pages 68-107, March.
    2. Martin Werding, 2005. "Survivor Benefits and the Gender Tax Gap in Public Pension Schemes: Observations from Germany," CESifo Working Paper Series 1596, CESifo.
    3. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," NBER Working Papers 7592, National Bureau of Economic Research, Inc.
    4. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Needed and Why It is Not Needed," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 389-410, August.
    5. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
    6. Martin Werding, 2005. "Survivor Benefits and the Gender Tax-Gap in Public Pension Schemes Work Incentives and Options for Reform," ifo Working Paper Series 7, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    8. Xiaodi Xie, 1997. "Children and female labour supply behaviour," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1303-1310.
    9. Fehr, Hans, 1999. "Welfare Effects of Dynamic Tax Reforms," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 5, number urn:isbn:9783161470165, September.
    10. Kuroda, Sachiko & Yamamoto, Isamu, 2008. "Estimating Frisch labor supply elasticity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 566-585, December.
    11. Orazio Attanasio & Peter Levell & Hamish Low & Virginia Sánchez-Marcos, 2015. "Aggregating Elasticities: Intensive and Extensive Margins of Female Labour Supply," NBER Working Papers 21315, National Bureau of Economic Research, Inc.
    12. repec:jns:jbstat:v:219:y:1999:i:3-4:p:494-503 is not listed on IDEAS
    13. Adam Looney & Monica Singhal, 2005. "The effect of anticipated tax changes on intertemporal labor supply and the realization of taxable income," Finance and Economics Discussion Series 2005-44, Board of Governors of the Federal Reserve System (U.S.).
    14. Keane, Michael, 2010. "The Tax-Transfer System and Labour Supply," MPRA Paper 55167, University Library of Munich, Germany.
    15. Ulrich van Suntum, "undated". "A way out of pay-as-you-go without a double burden," Working Papers 200105, Institute of Spatial and Housing Economics, Munster Universitary.
    16. Jorge Gonzalez Chapela, 2011. "Recreation, home production, and intertemporal substitution of female labor supply: evidence on the intensive margin," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 532-548, July.
    17. David Domeij & Martin Floden, 2006. "The Labor-Supply Elasticity and Borrowing Constraints: Why Estimates are Biased," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 242-262, April.
    18. Manuel Arellano & Olympia Bover, 1990. "La econometría de datos de panel," Investigaciones Economicas, Fundación SEPI, vol. 14(1), pages 3-45, January.
    19. Luis Eduardo Arango & Carlos Esteban Posada, 2005. "Labor Participation of Married Women in Colombia," Borradores de Economia 3103, Banco de la Republica.
    20. repec:eee:labchp:v:1:y:1986:i:c:p:103-204 is not listed on IDEAS
    21. Arango Luis E. & Carlos E. Posada, 2007. "Labor Participation of Married Women in Colombia," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE.
    22. van Suntum, Ulrich, 2010. "A way out of pay-as-you-go without a double burden," CAWM Discussion Papers 27, University of Münster, Münster Center for Economic Policy (MEP).

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_743. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.