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Underreported earnings and age-specific income redistribution in post-socialist economies

  • Andras Simonovits


    (Institute of Economics - Hungarian Academy of Sciences)

We analyze underreported earnings and age-specific income redistribution in postsocialist economies. Pensions, other transfers and public expenditures are financed from contributions and wage taxes, respectively. We derive the reported earnings and savings from individual utility maximization, when workers overly discount the future, obtain partial satisfaction from reporting earnings, cannot be excluded from the use of public services. The government maximizes a utilitarian social welfare function, corrected for discounting and taking into account the utility of public services. An optimal proportional pension system - complemented by appropriate means-testing - provides higher welfare than any system containing a significant flat component.

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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0927.

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Length: 29 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:has:discpr:0927
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