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How much is transfer and how much insurance in a pay-as-you-go system? The German Case

Author

Listed:
  • Börsch-Supan, Axel

    (Sonderforschungsbereich 504)

  • Reil-Held, Anette

    (Mannheim Research Institute for the Economics of Aging (MEA) and Sonderforschungsbereich 504)

Abstract

Pay-as-you go pension systems are an insurance against the risks of longevity-related old-age poverty and related risks. In addition, they are commonly also used as an instrument of redistribution. This paper provides alternative estimates of the transfer share in the German PAYG public pension system. Estimating this share is important in at least two respects. First, a transfer share may increase taxation-related dead weight losses and decrease public acceptance of the pension system. Second, the transfer share is an important parameter in assessing whether a pareto-efficient transition to a funded pension system is possible. The paper also attempts to disentangle intragenerational from intergenerational redistribution. It shows that, although intragenerational transfers are smaller than official estimates, the resulting still creates substantial dead weight losses opening some latitude for pareto-improvements. The intergenerational redistribution is much larger than the intragenerational redistribution. This creates negative participation incentives for the younger generation, and there is evidence that these disincentives are indeed strong.

Suggested Citation

  • Börsch-Supan, Axel & Reil-Held, Anette, 2000. "How much is transfer and how much insurance in a pay-as-you-go system? The German Case," Sonderforschungsbereich 504 Publications 00-26, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:00-26
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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