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Age-Specific Entrepreneurship and PAYG Public Pensions in Germany

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  • Burkhard Heer
  • Mark Trede

Abstract

We present new empirical evidence on the distribution of earnings, income and wealth among entrepreneurs in Germany. We document that both earnings and income are more concentrated among entrepreneurs than among workers and describe a large-scale overlapping-generations model that can replicate these findings. As an application, we compute the equilibrium effects of a reform of the German pay-as-you-go pension system in which entrepreneurs must also contribute and receive a pension. We show that in the presence of mobility between workers and entrepreneurs, the expected lifetime utility of all newborn households unanimously declines due to the general equilibrium effects of lower aggregate savings, and welfare losses amount to approximately 5% of total consumption. In addition, the integration of self-employed workers into the social security system in Germany does not help to improve its fiscal sustainability, and only an increase in the retirement age to 70 years will help to finance pensions at the present level beyond the year 2050.

Suggested Citation

  • Burkhard Heer & Mark Trede, 2020. "Age-Specific Entrepreneurship and PAYG Public Pensions in Germany," CQE Working Papers 9120, Center for Quantitative Economics (CQE), University of Muenster.
  • Handle: RePEc:cqe:wpaper:9120
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    More about this item

    Keywords

    Entrepreneurship; aging; income distribution; overlapping;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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