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Is There a Social Security Tax Wedge?

Author

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  • Cigno, Alessandro

    () (University of Florence)

Abstract

A Beveridgean pension scheme invariably introduces a wedge between the wage rate and the marginal take-home pay. A Bismarckian one can do so only if it is not actuarially fair, or in the presence of credit rationing. Interestingly, if the two possible sources of distortion are present at the same time, they will tend to offset each other. The distortion may even change sign (the wedge may become a premium). In any case, the same pension contribution will discourage labour less if the scheme is Bismarckian, than if it is Beveridgean.

Suggested Citation

  • Cigno, Alessandro, 2006. "Is There a Social Security Tax Wedge?," IZA Discussion Papers 1967, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1967
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    References listed on IDEAS

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    1. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-939, December.
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    6. Robert Fenge & Martin Werding, 2004. "Ageing and the tax implied in public pension schemes: simulations for selected OECD countries," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 159-200, June.
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    9. Borsch-Supan, Axel & Reil-Held, Anette, 2001. " How Much Is Transfer and How Much Is Insurance in a Pay-As-You-Go System? The German Case," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(3), pages 505-524, September.
    10. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
    11. Tullio Jappelli, 1990. "Who is Credit Constrained in the U. S. Economy?," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 219-234.
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    Citations

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    Cited by:

    1. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
    2. Alessandro Cigno, 2010. "How to Avoid a Pension Crisis: A Question of Intelligent System Design ," CESifo Economic Studies, CESifo, vol. 56(1), pages 21-37, March.
    3. Gilles Le Garrec, 2015. "Increased longevity and social security reform: questioning the optimality of individual accounts when education matters," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(2), pages 329-352, April.
    4. Carlos Vidal-Meliá & María del Carmen Boado-Penas, 2013. "Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1303-1320, April.
    5. repec:eee:hapoch:v1_609 is not listed on IDEAS
    6. Antonis Adam, 2007. "Pension Benefits, Labour Market Institutions, and Unemployment," LABOUR, CEIS, vol. 21(4-5), pages 595-610, December.
    7. Fisher, Walter H. & Keuschnigg, Christian, 2011. "Life-Cycle Unemployment, Retirement, and Parametric Pension Reform," Economics Series 267, Institute for Advanced Studies.
    8. Gilles Le Garrec, 2012. "Social security and growth in an aging economy : the case of acturial fairness," Working Papers hal-01070354, HAL.
    9. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hi6860cc6 is not listed on IDEAS
    10. Gilles Le Garrec, 2012. "Social security and growth in an aging economy : the case of acturial fairness," Sciences Po publications 2012-18, Sciences Po.
    11. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and return to education ; lessons for the social security reform," Documents de Travail de l'OFCE 2011-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    12. Carone, Giuseppe & Nicodème, Gaëtan & Schmidt, Jan, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," MPRA Paper 3996, University Library of Munich, Germany.
    13. Gilles Le Garrec & Stéphane Lhuissier, 2011. "Life expectancy, heavy work and the return to education: lessons for the social security reform," Working Papers hal-01069511, HAL.
    14. Cigno, A., 2016. "Conflict and Cooperation Within the Family, and Between the State and the Family, in the Provision of Old-Age Security," Handbook of the Economics of Population Aging, Elsevier.

    More about this item

    Keywords

    public pensions; Beveridge; Bismarck; tax wedge; implicit pension tax; labour;

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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