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

  • Marko Koethenbuerger
  • Panu Poutvaara

    ()

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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 795.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_795
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  1. Stefan Homburg, 1991. "Interest and Growth in an Economy with Land," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 450-59, May.
  2. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Gordon, R.H. & Bovenberg, A.L., 1994. "Why Is Capital So Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," Working Papers 358, Research Seminar in International Economics, University of Michigan.
  4. Brunner, Johann K., 1993. "Transition from a pay-as-you-go to a fully-funded pension system: The case of differing individuals and intragenerational fairness," Discussion Papers, Series I 266, University of Konstanz, Department of Economics.
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  7. Gábor Gyárfás & Marko Marquardt, 2001. "Pareto improving transition from a pay-as-you-go to a fully funded pension system in a model of endogenous growth," Journal of Population Economics, Springer, vol. 14(3), pages 445-453.
  8. BOADWAY, Robin W. & WILDASIN, David E., . "A median voter model of social security," CORE Discussion Papers RP -839, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Pascal Belan & Philippe Michel & Pierre Pestieau, 1998. "Pareto-Improving Social Security Reform," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 23(2), pages 119-125, December.
  10. Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters, in: Privatizing Social Security, pages 215-264 National Bureau of Economic Research, Inc.
  11. Martin Feldstein, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," NBER Working Papers 5413, National Bureau of Economic Research, Inc.
  12. Andrew B. Abel, 2001. "Will Bequests Attenuate The Predicted Meltdown In Stock Prices When Baby Boomers Retire?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 589-595, November.
  13. Cremer, Helmuth & Pestieau, Pierre, 2002. "The Double Dividend of Postponing Retirement," IDEI Working Papers 144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003.
  14. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
  15. David Miles & Allan Timmermann, 1999. "Risk sharing and transition costs in the reform of pension systems in Europe," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 251-286, October.
  16. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  17. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  18. BELAN, Pascal & PESTIEAU, Pierre, . "Privatizing social security: A critical assessment," CORE Discussion Papers RP -1407, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Laurence J. Kotlikoff, 1998. "Simulating the Privatization of Social Security in General Equilibrium," NBER Chapters, in: Privatizing Social Security, pages 265-311 National Bureau of Economic Research, Inc.
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  28. Corsetti, Giancarlo & Schmidt-Hebbel, Klaus, 1995. "Pension reform and growth," Policy Research Working Paper Series 1471, The World Bank.
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  30. Laitner, John, 2000. " Social Security Reform and National Wealth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 349-71, June.
  31. Bovenberg, A.L. & Gordon, R.H., 1996. "Why is capital so immobile internationally? Possible explanation and implications for capital income taxation," Other publications TiSEM 6a131c21-fd9a-4d83-8d9a-7, Tilburg University, School of Economics and Management.
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