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Demographic changes and the implicit tax rate in a pay-as-you-go pension system

  • Kifmann, Mathias
  • Schindler, Dirk

We analyze the effects of a permanent increase in life expectancy and of a permanent decline in the rate of population growth on intergenerational redistribution in a pay-as-you-go pension system with a constant contribution or constant replacement rate. We show that under these policies both demographic changes increase the implicit tax rate of later-born generations to the pension system. In addition, we characterize policies which smooth the implicit tax rate. To reach this objective, generation-specific contribution or replacement rates are necessary. Partial funding of the pension system is indispensable if the rate of population growth falls. If life expectancy increases, the contribution rate fluctuates and may not converge to a new steady state value unless funded elements are introduced.

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Paper provided by University of Konstanz, Department of Economics in its series Discussion Papers, Series I with number 308.

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Date of creation: 2000
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Handle: RePEc:zbw:kondp1:308
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  1. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1986. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc.
  2. Breyer, Friedrich & Kifmann, Mathias, 1999. "Erhöhung der Regelaltersgrenze oder Kürzung des Rentenniveaus?," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 79(5), pages 288-292.
  3. Roger H. Gordon & Hal R. Varian, 1985. "Intergenerational Risk Sharing," NBER Working Papers 1730, National Bureau of Economic Research, Inc.
  4. Fehr, Hans, 1999. "Pension reform during the demographic transition," W.E.P. - Würzburg Economic Papers 8, University of Würzburg, Chair for Monetary Policy and International Economics.
  5. Brunner, Johann K., 1993. "Transition from a pay-as-you-go to a fully-funded pension system: The case of differing individuals and intragenerational fairness," Discussion Papers, Series I 266, University of Konstanz, Department of Economics.
  6. Breyer, Friedrich & Kifmann, Mathias & Stolte, Klaus, 1997. "Rentenzugangsalter und Beitragssatz zur Rentenversicherung," Discussion Papers, Series II 332, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  7. Blanchet, Didier & Kessler, Denis, 1991. "Optimal Pension Funding with Demographic Instability and Endogenous Returns on Investment," Journal of Population Economics, Springer, vol. 4(2), pages 137-54, May.
  8. Friedrich Breyer & Klaus Stolte, 2000. "Demographic Change, Endogenous Labor Supply and the Political Feasibility of Pension Reform," Discussion Papers of DIW Berlin 202, DIW Berlin, German Institute for Economic Research.
  9. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October.
  10. Schnabel, Reinhold, 1997. "Rates of Return of the German Pay-As-You-Go Pension System," Sonderforschungsbereich 504 Publications 98-56, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  11. Brunner, Johann K., 1993. "Redistribution and the efficiency of the pay-as-you-go pension system," Discussion Papers, Series I 265, University of Konstanz, Department of Economics.
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