scholarly journals Pareto-Improving Social Security Reform when Financial Markets Are Incomplete!?

2006 ◽  
Vol 96 (3) ◽  
pp. 737-755 ◽  
Author(s):  
Dirk Krueger ◽  
Felix Kubler
Keyword(s):  
Social Security ◽  
Financial Markets ◽  
Incomplete Markets ◽  
Labor Income ◽  
Crowding Out ◽  
Pareto Improvement ◽  
Overlapping Generations Model ◽  
Stochastic Production ◽  
Unfunded Social Security ◽  
Pareto Improving

This paper studies an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system leads to a Pareto improvement. When returns to capital and wages are imperfectly correlated, a system that endows retired households with claims to labor income enhances the sharing of aggregate risk between generations. Our quantitative analysis shows that, abstracting from the capital crowding-out effect, the introduction of social security represents a Pareto-improving reform, even when the economy is dynamically efficient. However, the severity of the crowding-out effect in general equilibrium tends to overturn these gains.

Pareto Efficient Pay-as-you-go Pension Systems with Multi-Period Lives / Pareto-effiziente umlagefinanzierte Alterssicherungssysteme bei mehrperiodigem Arbeitsleben

1999 ◽  
Vol 219 (3-4) ◽  
Author(s):  
Matthias Wrede
Keyword(s):  
Pension System ◽  
Pension Scheme ◽  
Labor Income ◽  
Present Value ◽  
Overlapping Generations Model ◽  
Pension Systems ◽  
Individual Contributions ◽  
The Government ◽  
Carry Over ◽  
Pareto Improving

SummaryThis paper employs a three-period-overlapping-generations model to discuss intergenerational (in-)efficiency of a PAYG system when labor supply is endogenous. Four main results will be derived.First, a pension system is (constrained) efficient if the existing system itself and reforms are restricted to guarantee that benefits are proportional to contributions in present value terms.Second, the result does not carry over to other pension systems where the benefits of a retiree are proportional to weighted individual contributions.Third, if the actual PAYG scheme is not a second-best-optimum for some generations, a welfare improving reform is possible provided that the government is not restricted to systems with partial equivalence of contributions and benefits in present value terms. A Pareto-improving transition from the PAYG system to a fully funded system might become feasible provided that the change in the pension scheme is accompanied by an adequate compensating redistribution among generations.Fourth, partial equivalence in present value terms, which requires uniform benefit-adjusted taxation of labor income, does not ensure intergenerational efficiency in all circumstances. However, if uniform benefit-adjusted taxation were optimal, a pension system like the German PAYG system would not be intergenerationally efficient since it misses partial equivalence in present value terms.

scholarly journals The Impact of Labor Income Tax Progressivity on the Fiscal Multipliers in the Context of the Fiscal Consolidation

2020 ◽  
pp. 21-38
Author(s):  
Mariana Santos
Keyword(s):  
Incomplete Markets ◽  
Income Tax ◽  
Structural Characteristics ◽  
The United States ◽  
Labor Income ◽  
Fiscal Consolidation ◽  
Overlapping Generations Model ◽  
Fiscal Multipliers ◽  
Tax Progressivity ◽  
The Impact

Fiscal multipliers depend on several structural characteristics of each economy. In this study it is argued that labor income tax progressivity lowers the fiscal multipliers of fiscal consolidation programs. By calibrating an incomplete‑ markets, overlapping generations model for the United States for different values of the labor income tax progressivity, it is shown that as progressivity increases the recessionary impacts of fiscal consolidation are lower in the case of consolidation through decrease of government spending and are more recessionary in the case of consolidation financed with tax hikes.

A NOTE ON SOCIAL SECURITY WELFARE WITH SELF-CONTROL PROBLEMS

2011 ◽  
Vol 15 (4) ◽  
pp. 579-594 ◽  
Author(s):  
Alessandro Bucciol
Keyword(s):  
Social Security ◽  
The United States ◽  
Self Control ◽  
Control Problems ◽  
Replacement Rate ◽  
Overlapping Generations Model ◽  
Aggregate Consumption ◽  
Social Security Programs ◽  
Unfunded Social Security ◽  
Macro Variables

We develop an overlapping-generations model for a closed economy with uncertainty on labor income and mortality risk to show that unfunded social security programs may increase welfare in economies where agents are affected by self-control problems à la Gul and Pesendorfer (2001, Econometrica 69, 1403). We depart from the existing literature by setting the agent's preference parameters to match target levels of macro-variables observed in the real U.S. economy. In our approach, economies with tempted and nontempted agents are indistinguishable in terms of aggregate consumption, labor, and saving behavior when social security provides a replacement rate of 40% (as in the United States). This situation makes agents bear costly self-control problems over more years. Our simulations indicate that social security improves welfare with degrees of temptation equal to 11% or higher. A social security program with a replacement rate of 40% finds support for degrees of temptation not lower than 15%.

scholarly journals Taxing Capital? Not a Bad Idea After All!

2009 ◽  
Vol 99 (1) ◽  
pp. 25-48 ◽  
Author(s):  
Juan Carlos Conesa ◽  
Sagiri Kitao ◽  
Dirk Krueger
Keyword(s):  
Income Tax ◽  
Labor Income ◽  
Income Shocks ◽  
Capital Income ◽  
Overlapping Generations Model ◽  
Cycle Structure ◽  
Tax Rate ◽  
Average Household Income ◽  
Optimal Capital

We quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks and permanent productivity differences of households. The optimal capital income tax rate is significantly positive at 36 percent. The optimal progressive labor income tax is, roughly, a flat tax of 23 percent with a deduction of $7,200 (relative to average household income of $42,000). The high optimal capital income tax is mainly driven by the life-cycle structure of the model, whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system. (JEL E13, H21, H24, H25)

scholarly journals Fertility, Union Wage Setting and Social Security System

2016 ◽  
Vol 8 (9) ◽  
pp. 1
Author(s):  
Leran Wang
Keyword(s):  
Social Security ◽  
Trade Unions ◽  
Social Security System ◽  
Fertility Rate ◽  
Security System ◽  
Tax Rates ◽  
Endogenous Fertility ◽  
Wage Setting ◽  
Overlapping Generations Model ◽  
Child Allowances

<p>This study analyzes how a social security system composed of a public pension, child allowances, and unemployment insurance affects endogenous fertility and unemployment when the wage level is endogenously set by monopolistic trade unions in an overlapping generations model. The analysis reveals, first, that increased pension tax rates lead to a higher fertility rate when wages are higher but a lower rate when wages are lower. Second, an increased child allowances tax rates lead to an increased fertility rate when wages are lower but a decreased rate when wages are higher. Therefore, both social security and wage setting should be considered in order to improve fertility and reduce unemployment.</p>

scholarly journals Skill-Biased Technological Change and Inequality in the U.S.

2020 ◽  
pp. 91-107
Author(s):  
Ana Ferreira
Keyword(s):  
Income Inequality ◽  
Technological Change ◽  
Incomplete Markets ◽  
Gini Coefficient ◽  
Income Tax ◽  
Overlapping Generations ◽  
Overlapping Generations Model ◽  
Biased Technological Change ◽  
Household Heterogeneity ◽  
The U.S

Since the 1980s, income inequality has increased markedly and has reached the highest level ever since it started being recorded in the U.S. This paper uses an overlapping generations model with incomplete markets that allows for household heterogeneity that is calibrated to match the U.S. economy with the purpose to study how skill-biased technological change (SBTC) and changes in taxation quantitatively account for the increase in inequality from 1980 to 2010. We find that SBTC and taxation decrease account for 48% of the total increase in the income Gini coefficient. In particular, we conclude that SBTC alone accounted for 42% of the overall increase in income inequality, while changes in the progressivity of the income tax schedule alone accounted for 5.7%.

scholarly journals Financial Globalization, Inequality, and the Rising Public Debt

2014 ◽  
Vol 104 (8) ◽  
pp. 2267-2302 ◽  
Author(s):  
Marina Azzimonti ◽  
Eva de Francisco ◽  
Vincenzo Quadrini
Keyword(s):  
Income Inequality ◽  
Financial Markets ◽  
Incomplete Markets ◽  
Public Debt ◽  
Government Debt ◽  
Developed Countries ◽  
Idiosyncratic Risk ◽  
International Financial Markets ◽  
Industrialized Countries ◽  
Potential Mechanism

During the last three decades government debt has increased in most developed countries. During the same period we have also observed a significant liberalization of international financial markets. We propose a multicountry model with incomplete markets and show that governments may choose higher levels of debt when financial markets become internationally integrated. We also show that public debt increases with the volatility of uninsurable income (idiosyncratic risk). To the extent that the increase in income inequality observed in some industrialized countries has been associated with higher idiosyncratic risk, the paper suggests another potential mechanism for the rise in public debt. (JEL D31, E62, F65, H63)

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