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Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?

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  • Marko Köthenbürger
  • Panu Poutvaara

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Abstract

In earlier literature, the suggested Pareto improvements in pay-as-you-go (PAYG) systems have relied on the presence of externalities or the possibility of intragenerational redistribution. We show that neither assumption is necessary in an economy with intergenerational trade in a fixed factor of production, here labeled as land. Reducing the social security tax rate encourages investment in complementary human capital. Future efficiency gains accruing to land are capitalized in its value which compensates the land-owning pensioners for reduced benefits. We also explain why the PAYG system may have lost its appeal even for pensioners after its introduction.

Suggested Citation

  • Marko Köthenbürger & Panu Poutvaara, 2002. "Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?," CESifo Working Paper Series 795, CESifo Group Munich.
    • Handle: RePEc:ces:ceswps:_795
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    Cited by:

    1. Yvonne Adema & Lex Meijdam & Harrie Verbon, 2009. "The international spillover effects of pension reform," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(5), pages 670-696, October.
    2. Marko Koethenbuerger & Panu Poutvaara, 2009. "Rent taxation and its intertemporal welfare effects in a small open economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(5), pages 697-709, October.

    More about this item

    Keywords

    social security reform; fixed factor; pay-as-you-go system; capital gains taxation;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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