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Implicit Pension Debt and the Role of Public Pensions for Human Capital Accumulation: An Assessment for Germany

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  • Werding, Martin

Abstract

Implicit pension debt involved in existing pay-as-you-go public pension schemes is nowadays seen as an important determinant of the long-term sustainability of general government finances. Explicit up-dated calculations regarding its size are however largely lacking. The present paper takes up the lessons that emerge from the relevant literature and estimates the amount of implicit pension debt for the German Statutory Pension Scheme under the current legal framework as well as over the series of reforms that have been enacted during the last fifteen years. It is demonstrated that, through these reforms, implicit liabilities have been reduced substantially but are nevertheless still sizeable. Even if future contribution rates are increased as prescribed by current rules, there will be a notable gap in the German public pension scheme's total balance sheet. In the second part of the paper, it is also discussed that, by the way they are conventionally designed, unfunded pension schemes may have a negative impact on human capital accumulation and, hence, on future contributions. A proposal for how this source of potential intrinsic instability could be removed by redesigning the German public pension scheme is then sketched.

Suggested Citation

  • Werding, Martin, 2006. "Implicit Pension Debt and the Role of Public Pensions for Human Capital Accumulation: An Assessment for Germany," Discussion Paper 283, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:piedp1:283
    Note: Final version, January 2006
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/14172/1/pie_dp283.pdf
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    References listed on IDEAS

    as
    1. Paul van den Noord & Richard Herd, 1993. "Pension Liabilities in the Seven Major Economies," OECD Economics Department Working Papers 142, OECD Publishing.
    2. Michele BOLDRIN & Mariacristina DE NARDI & Larry E. JONES, 2015. "Fertility and Social Security," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 261-299, September.
    3. Robert Fenge & Martin Werding, 2003. "Ageing and Fiscal Imbalances Across Generations: Concepts of Measurement," CESifo Working Paper Series 842, CESifo Group Munich.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Beltrametti, Luca & Della Valle, Matteo, 2011. "Does pension debt mean anything after all?," MPRA Paper 29694, University Library of Munich, Germany.
    2. repec:bla:revinw:v:63:y:2017:i:1:p:70-94 is not listed on IDEAS
    3. Beltrametti, Luca & Della Valle, Matteo, 2012. "The Implicit Pension Debt: Its Meaning and an International Comparison - Il debito pensionistico: significato e confronti internazionali," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 65(1), pages 15-38.
    4. Heidler, Matthias & Müller, Christoph & Weddige, Olaf, 2009. "Measuring accrued-to-date liabilities of public pension systems: Method, data and limitations," FZG Discussion Papers 37, University of Freiburg, Research Center for Generational Contracts (FZG).
    5. Luca Beltrametti & Matteo Della Valle, 2011. "Does the implicit pension debt mean anything after all?," CeRP Working Papers 118, Center for Research on Pensions and Welfare Policies, Turin (Italy).

    More about this item

    Keywords

    Public pensions; public debt; Germany; human capital; fertility;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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