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The Use of Replacement Rates in International Comparisons of Benefit Systems

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  • Peter Whiteford

Abstract

Comparative studies of social security systems have increasingly turned towards the use of replacement rates as measures of the level of benefits in different countries and therefore of the degree of social protection afforded by different welfare systems. The rationale for this is that replacement rates provide consistent measures of the relative generosity of payments and therefore indicate the ‘quality’ of social security systems. This paper reviews the use of replacement rates in comparisons of the generosity of retirement pensions and argues that they are not necessarily reliable as such measures. This reflects a number of factors, including incomplete measurement of benefit packages and differences in what must be bought out of disposable incomes. Most importantly, the paper suggests that the levels of earnings in different countries are not independent of the processes of redistribution. In particular, countries which rely on social security contributions from employers appear to provide more generous benefits than those which rely on income taxes or employee contributions. This is a consequence of the fact that employer contributions do not figure specifically in the calculation of replacement rates. The relative generosity of benefit systems is overstated in countries which rely on employer social security contributions to fund benefits. The paper concludes that a range of complementary indicators of social security systems should be used in future analysis of these issues.

Suggested Citation

  • Peter Whiteford, 1995. "The Use of Replacement Rates in International Comparisons of Benefit Systems," Discussion Papers 0054, University of New South Wales, Social Policy Research Centre.
  • Handle: RePEc:wop:sprcdp:0054
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    File URL: http://www.sprc.unsw.edu.au/dp/dp054.pdf
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    1. Gerry Redmond, 1999. "Incomes, incentives and the growth of means-testing in Hungary," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 77-99, March.
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    Cited by:

    1. Amaral, Pedro S. & Tasci, Murat, 2016. "The cyclical behavior of equilibrium unemployment and vacancies across OECD countries," European Economic Review, Elsevier, vol. 84(C), pages 184-201.
    2. Koen Caminada & Kees Goudswaard & Olaf Van Vliet, 2010. "Patterns of Welfare State Indicators in the EU: Is there Convergence?," Journal of Common Market Studies, Wiley Blackwell, vol. 48, pages 529-556, June.
    3. Koen Caminada & Kees Goudswaard, 2001. "International Trends in Income Inequality and Social Policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 395-415, August.
    4. Kenneth Nelson, 2004. "Mechanisms of Poverty Alleviation," LIS Working papers 372, LIS Cross-National Data Center in Luxembourg.
    5. Bruce Chapman & James Jordan & Ken Olivier & John Quiggin, 2000. "The Unemployment Trap Meets the Age-Earning Profile," CEPR Discussion Papers 415, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    6. Queisser, Monika & Whitehouse, Edward, 2005. "Pensions at a glance: public policies across OECD countries," MPRA Paper 10907, University Library of Munich, Germany.
    7. Peter Saunders, 1998. "Using Budget Standards to Assess the Well-Being of Families," Discussion Papers 0093, University of New South Wales, Social Policy Research Centre.
    8. World Bank, 2002. "Reducing Vulnerability and Increasing Opportunity : Social Protection in the Middle East and North Africa," World Bank Publications, The World Bank, number 14255.
    9. Wang, Jinxian & Van Vliet, Olaf & Goudswaard, Kees, 2015. "Social assistance benefits and European coordination," MPRA Paper 66147, University Library of Munich, Germany.
    10. Sheila Shaver, 1996. "Universality and Selectivity in Income Support: An Assessment of the Issues," LIS Working papers 145, LIS Cross-National Data Center in Luxembourg.
    11. Van Vliet, Olaf & Nijboer, Henk, 2012. "Flexicurity in the European Union: flexibility for outsiders, security for insiders," MPRA Paper 37012, University Library of Munich, Germany.
    12. Bruce Bradbury & Markus Jantti, 1999. "Child Poverty across Industrialized Nations," Papers iopeps99/70, Innocenti Occasional Papers, Economic Policy Series.
    13. Whitehouse, Edward, 2001. "Pension systems in 15 countries compared: the value of entitlements," MPRA Paper 14751, University Library of Munich, Germany.
    14. Caroline Dewilde, 2008. "Individual and institutional determinants of multidimensional poverty: A European comparison," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 86(2), pages 233-256, April.
    15. Wang, Jinxian & Van Vliet, Olaf, 2014. "Social assistance and minimum income benefits: Benefit levels, replacement rates and policies across 33 countries, 1990-2009," MPRA Paper 66464, University Library of Munich, Germany.
    16. Peter Saunders & Cathy Thomson & Ceri Evans, 2000. "Social Change and Social Policy: Results from a Survey of Public Opinion," Discussion Papers 00106, University of New South Wales, Social Policy Research Centre.
    17. Nikolay Galabov, 2000. "Expanding the Range of the Assessable Incomes with Individual Income Tax and Decrease of the Tax Burden," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 92-113.
    18. Tony Eardley & Peter Saunders & Ceri Evans, 2000. "Community Attitudes Towards Unemployment, Activity Testing and Mutual Obligation," Discussion Papers 00107, University of New South Wales, Social Policy Research Centre.
    19. Spartaco Greppi & Heiner Ritzmann, 2001. "La protection sociale en Suisse: évolution depuis 1990 sous l'angle d'un nouvel outil d'analyse statistique," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 137(III), pages 383-406, September.
    20. Sabine Israel, 2016. "More than Cash: Societal Influences on the Risk of Material Deprivation," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 129(2), pages 619-637, November.
    21. Cornelisse, Peter & Goudswaard, Kees, 2001. "On the convergence of social protection systems in the European Union," MPRA Paper 21297, University Library of Munich, Germany.
    22. Bruce Bradbury, 1999. "Tax Theory and Targeting: A Survey," Discussion Papers 00100, University of New South Wales, Social Policy Research Centre.

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