How Much is Transfer and How Much is Insurance in a Pay‐as‐you‐go System? The German Case

Pay-as-you-go pension systems provide insurance against longevity-related old-age poverty and related risks. They are commonly also used as instruments for redistribution. This paper provides several estimates of the insurance and transfer share of the German public pension system. Estimating these shares is important because they are indicative of taxation-related deadweight losses and influence public acceptance of the pension system. We also disentangle intragenerational from intergenerational transfers. Although our estimate of intragenerational transfers is smaller than recent semi-official estimations, such transfers create substantial deadweight losses. Intergenerational transfers are much larger, thereby contributing to strong negative participation incentives for the younger generation.
JEL classification : H 55; J 26     

Public pension policy and the equity–efficiency trade-off∗

This paper illustrates that the equity–efficiency trade-off between a redistributive, Beveridgean, pension system and an earnings-based, Bismarckian, scheme can collapse when accounting for labor supply effects on the extensive margins. I introduce a general equilibrium overlapping generations model with endogenous savings, human capital formation, and labor supply. The model is calibrated to an average OECD economy. The results suggest that allocating funds towards a Bismarckian pension system always reduces earnings inequality – and, in some cases, lifetime inequality – when compared with a Beveridgean scheme. However, the Bismarckian scheme crowds out more human capital in the economy following a higher steady-state interest rate.     

A Model Under Siege: A Case Study of the German Retirement Insurance System

This study evaluates the positive and negative features of the German public pension system and discusses three reasons for its increasing perceived and real difficulties: maturation, negative incentive effects, and the problems of demographic change. The German system in its current form may be able to limp through the coming decades but will cease to be the exemplary Bismarckian machine that has created generous retirement incomes at reasonable tax rates. Current policy proposals are insufficient and a few but incisive design changes and some degree of prefunding could rescue the many positive aspects of the German retirement insurance system.     

Welfare Analysis of Pension Reforms in an Ageing Japan

This paper uses a computable general equilibrium model with overlapping generations to explore the effects of different public pension schemes on economic welfare, and intergenerational and intragenerational equity. Besides the benchmark case based on the 2004 public pension reform, the present paper considers two alternative reforms: financing the basic pension benefit through a consumption tax, and eliminating the earnings‐related pension benefit. The simulation results suggest that even the consumption‐tax financing of only the basic pension, namely, the combination of both reforms, might not improve overall economic welfare, although it increases economic output by inducing capital formation.     

Drinking under communism: Why do alcohol consumption habits in Eastern Europe differ from the west in the long-run?

This paper looks into possible explanations for differences between Eastern and Western Europe alcohol consumption behaviour even twenty years after the collapse of the Soviet regime. It suggests these differences can be viewed as an expression of cultural habits. We explore different ways of defining exposure to the communist regime: using number of years a person spent under the regime and also a dummy indicator for spending formative years (18–25) in it. We find both to be strong factors in explaining alcohol consumption behaviour. We consider differences in frequency of alcohol consumption and binge drinking using European Health Interview Survey (EHIS) micro data from Eurostat. Estimations are run with ordered probit model for men and women separately. Evidence suggests a statistically significant effect of experiencing communist regimes, which is larger for women's alcohol consumption frequency than for men's. It is also the most important factor in explaining more frequent male binge drinking. These effects hold after controlling for socio-economic, country level and time characteristics. This suggests the attitudes towards alcohol consumption could be more permissive in the Eastern Bloc countries.     

Contribution-based vs. earnings-related retirement pension systems: some policy proposals for Italy

This paper analyses the relationship between contributions paid and benefits received within the current old age pension scheme, evaluating the implications of reinforcing the link between individual contributions and benefits, in a framework where welfare assistance and social security are kept separate. Section 2 describes the theoretical model, adopted to examine the factors affecting the contribution-based and the earnings-related annual pension or the total pension benefits over the entire retirement period. The consequences that different levels of relevant parameters have on the ratio between the two yearly pensions are, then, analysed. Section 3 illustrates the longitudinal sample of private employees belonging to the National Institute for Social Security (INPS–FPLD), in particular of those who will retire between 1995–96 and 2001: it is used to calculate the annual earnings-related and contribution-based pension. In aceteris paribussituation, allowing for all intragenerational redistribution transfers currently provided by the pension system (through a supplement to an established minimum pension, through ceilings and reversory rights), the annual contribution-based pension appears to be in 1995 about two thirds of the annual earnings-related one. This implies that the State could currently save one third of its expenditure for new FPLD pensioners, by simply switching to a criterion of social security fairness (giving each to his own in actuarial terms) without relinquishing any of the distributive corrections currently enacted within the pension system. Through this potential reform, in the next 7 years total State savings at constant prices would reach 14 000 billion lire, or 2·2% of the stock value of pensions in the same time interval.     

Public employee pensions and the local labor budget

This paper examines the causes and consequences of public employee pension funding by local governments. The pension funding decision is analyzed within the context of two models: one where current taxpayers stay and pay employees' future retirement benefits and a second model where current taxpayers move and thereby hope to avoid paying future retirement benefits. The empirical results test the alternative models for a sample of 60 large U.S. cities using data for local police and fire services. The effects of underfunding on local wages and employment is then examined and found to be significant. Implications for national pension funding policy are drawn.     

农民工养老保险统筹收入再分配研究

农民工养老保险统筹收入再分配集中体现着养老保险全国统筹的缩小收入差距和有利于流动人口养老金异地接转两大主要功能。本文从收入再分配入手研究农民工养老保险全国统筹的合理性及实现路径,构建了农民工养老保险统筹收入再分配系数总模型和分系数模型,提出了农民工养老保险全国统筹“两类型”和“五方案”, 并对农民工养老保险统筹给付水平、收入再分配系数进行了定量分析,最后通过生存公平和劳动公平检验确定了替代率10%的中央统筹模式为现阶段农民工养老保险全国统筹起步最优方案,进而提出了具体政策建议。     

On the Economics and Scope of Implicit Pension Debt: An International Perspective

This paper examines the concept and scope of unfunded public pension liabilities, or implicit pension debt (IPD), from an international perspective. First, the paper discusses the importance and public finance background of IPD. Second, it presents and compares different methods for estimating IPD. Third, it provides international estimates of IPD based on accrued-to-date or termination liability methods with consistent assumptions across all countries using the World Bank's ``Pension Reform Options Simulation Toolkit' (PROST) computer model. The policy conclusions stress the need for standardized international reporting of this indicator.     

The political economy of contributive pensions in developing countries

This paper sheds light on the role of public institutions as a way to reduce tax evasion through a close link between payroll taxation and pension benefits. We use a political economy model in which agents have the possibility to hide part of their earnings in order to avoid taxation and, where the public system is more efficient in providing annuitized pension benefits than the private sector. We show that in the absence of evasion costs, agents are indifferent to the tax rate level as they can always perfectly adapt compliance so as to face their preferred effective tax rate. There is unanimity in favour of the maximum tax rate and, the public pension system is found to be partially contributive in order to increase tax compliance and thus the resources collected. This, in turn, enables higher redistribution toward the worst-off agents. When evasion costs are introduced, perfect substitutability between compliance and taxation breaks down. At the majority-voting equilibrium, individuals at the bottom of the income distribution who are in favour of more redistribution, and those at the top who want to transfer more resources to the old age, form a coalition against middle-income agents, in favour of high tax rates. In addition to the previous tax base argument, the optimal level of the Bismarkian pillar is now chosen so as to account for political support.     

The fiscal outlook in Austria: an evaluation with Generational Accounts

During the next few decades the populations of most developed countries will grow older and older as a result of the low fertility rates since the 1970s and/or the continuously increasing life expectancy. Generational Accounting which was introduced in the early 1990s, can illustrate the effects of this ageing process on a country’s fiscal situation and on the intergenerational redistribution. Austria’s age dependency ratio will more than double over the next four decades in most official projections. In our paper we quantify for Austria how unsustainable its public finances are due to the demographic development. We show that despite recent reforms of the pension and health systems the demographic development produces a major problem for Austria’s coffers. Furthermore we compare our results to similar calculations for Germany and Switzerland.     

Heterogeneity in preferences for redistribution and public spending: A cross-country analysis

Political coordination and policy outcomes may be the result not only of the position of the ‘median voter’ in a political scale but also of the heterogeneity of preferences around the median. Depending on the level of government and the type of policy, such heterogeneity may lead to lower public spending and redistribution. We assess this issue empirically by analyzing the relationship between the distribution of preferences for redistribution and the amount of public expenditure at different levels of government and for several types of spending in 23 European countries. Our results suggest a negative and significant correlation between heterogeneity of preferences for redistribution and public spending that is stronger at the local level and for redistributive functions, independent of the median individual's preferences.     

A dynamic game for fiscal federalism with non-local externalities

We address the questions of the patterns and the efficiency of public intervention in a dynamic game model between public agencies in charge of a non-local externality. We give two examples: pollution spreading between water basins (negative externality), and non-uniform contributions from the elite and from the mass to a cultural background (positive externality). We define two extreme cases, depending on whether or not the receiving end of the externality balances the transmitting end. When both balance, the reactivity of the agency structure is strong and the need for redistribution between them is weak. When they do not balance, the externality is more markedly non-local and redistribution is required to balance the fiscal burden (or product) from pigouvian instruments among all beneficiaries. We show that, with a static rule of redistribution that allows them to compute transfers between them as a function of their own strategies, the decentralized agencies' reactivity is somewhat slowed, but they still react faster and more efficiently than a static central agency.     

INEQUALITY, MAJORITY VOTING AND THE REDISTRIBUTIVE EFFECTS OF PUBLIC EDUCATION FUNDING

Abstract. This paper documents that in poor countries redistribution in cash is negligible. To the extent that public education funding is redistributive, the lion's share of redistribution in poor countries is through public education budgets. I present a simple model of how inequality determines redistribution through public education spending when funding decisions are made through majority voting. Contrary to T. Persson and G. Tabellini, and contrary to conventional wisdom, in the present model higher inequality leads to less redistribution if the curvature in the utility function is sufficiently high. I argue that large curvature of the utility function is empirically relevant.     

Pay-as-you-go public pensions with endogenous fertility

A 1986 "model of public pensions is generalized to allow for endogenous fertility. We show that gifts to the old, which can be viewed as social security contributions, are always positive in the steady state. An optimal stationary allocation is sustainable if savings are zero and fertility is exogenous. However, the optimal allocation is in general not sustainable. In particular, if a government enforces a social security plan setting the pension level at the optimal gifts and individuals optimize under the pension constraint, the resulting sustainable outcome is in general different from either the optimal or Nash outcome." The geographical focus is on developed countries.     

我国最优混合养老保险体制的选择:收益和风险分析

养老金研究的核心问题之一在于选择合适的养老金计划运行方式。文章基于中国实际,通过引入随机性的"权衡理论"模型分析发现,在代表性参保人效用最大化前提下,运行方式选择类似于金融资产组合问题。所谓的艾隆条件只是在确定性模型下的特定结果。在加入风险因素后,即便在艾隆条件下,引入一定的积累制也将改善养老金体系的运行状况。两种制度最优的混合比例将受到人口增长率、工资增长率、个人风险规避倾向和金融市场因素的共同影响。分析结果表明提高养老金计划运行收益率和养老基金分散化投资有利于增进参保人效用。     

Collective Annuities and Redistribution

This paper studies the role of alternative pension systems that offer collective annuities. The defining characteristic of collective annuities is that they do not depend on an individual's survival probabilities. We show that such a system may be welfare improving (with a utilitarian social welfare function) even when private annuity markets are perfect and when life expectancy and earning abilities are positively correlated (i.e., in a setting that is  a priori  biased against collective annuities). We first concentrate on linear pension systems and contrast two schemes: a pure contributory (Bismarckian) pension and a flat rate (Beveridgean) pension. We show that the case for collective annuities is stronger when they are associated with a flat pension system. Then we analyze nonlinear pension schemes. We show that the solution can be implemented by a pension scheme associated with annuities that reflect some degree of "collectiveness." Unlike under pure collective annuities, benefits do depend on life expectancy but to a lesser degree than with actuarially fair private annuities. In other words, the impact of survival probabilities is mitigated rather than completely neutralized.     

Aging,Savings, and Public Pensions in Japan*

We analyze the impact of population aging on Japan's household savings rate and on its public pension system and the impact of that system on Japan's household savings rate and obtain the following results: first, the age structure of Japan's population can explain the level of, and past and future trends in, its household savings rate; second, the rapid aging of Japan's population is causing Japan's household savings rate to decline and this decline can be expected to continue; third, the pay‐as‐you‐go nature of the public pension system, combined with rapid population aging, created considerable intergenerational inequities and increased the savings rates of cohorts born after 1965, which in turn slowed the decline in Japan's household savings rate; and fourth, the 2004 public pension reform alleviated the intergenerational inequities of Japan's public pension system somewhat but will in the long run exacerbate the downward trend in Japan's household savings rate.     

中国城镇养老保险制度改革的收入分配效应——基于2002年城镇住户调查数据的定量分析

Using the micro data of Urban Household Survey made by the National Bureau of Statistics of China(NBS) in 2002, this paper studies quantitatively the distributional effects of Public Pension Reform in urban China, from intragenerational and intergenerational perspectives, by measuring lifetime net benefits that urban employees obtain under the public pension system in 1997 and the newest one announced in December 2005, respectively. The results indicate that the regressive income transfer existing before implementation of the reform is improved as a consequence of the 1997 reform. However, the Act of 2005 Reform generates the obvious inclination of the regressive income transfer among people who exceed 40 years old in 2002. On the other hand, from the viewpoint of intergenerational distribution, the intergenerational inequality resulted from 1997 reform is greater than that from 2005 reform. Moreover, all generations would receive higher lifetime net benefits under the Act of 2005 Reform, but it must be based on sustainable pension system and participants’ full pension contribution during their duration of employment. __________ Translated from Jingji yanjiu 经济研究(Economic Research Journal), 2007, (3): 70–80, 91     

A comparison of purchasing power parity and consumption levels in Austria and Czechoslovakia

An attempt is made to estimate purchasing-power parity (Par) for a comparison of Czechoslovakia's consumption level with Austria's in 1980. The Par calculation is based on modified official consumer baskets of both countries and the author's own assessment of quality and structural differences. The main conclusion is that economic development in Czechoslovakia was significantly slower than in Austria. A comparison with results of a methodologically similar study of 1964 implies a significant worsening of Czechoslovakia's relative living conditions.