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Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?

  • Marko Köthenbürger

    (Center for Economic Studies, University of Munich)

  • Panu Poutvaara

    (Centre for Economic & Business Research)

In earlier literature, the suggested Pareto improvements in pay-as-you- go (PAYG) systems have relied on the presence of externalities or the possibility of intragenerational redistribution. We show that neither assumption is necessary in an economy with intergenerational trade in a fixed factor of production, here labeled as land. Reducing the social security tax rate encourages investment in complementary human capital. Future efficiency gains accruing to land are capitalized in its value which compensates the land-owning pensioners for reduced benefits. We also explain why the PAYG system may have lost its appeal even for pensioners after its introduction.

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Paper provided by EconWPA in its series Public Economics with number 0404008.

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Length: 34 pages
Date of creation: 19 Apr 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0404008
Note: Type of Document - pdf; pages: 34
Contact details of provider: Web page: http://econwpa.repec.org

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