Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_5192.html
   My bibliography  Save this paper

Optimal Pensions in Aging Economies

Author

Listed:
  • Burkhard Heer
Abstract
Ýmrohoroðlu, Ýmrohoroðlu and Joines [1995, A life-cycle analysis of Social Security, Economic Theory, vol. 6, 83-114] show that the optimal replacement ratio of the payas-you-go public pension system in the US economy amounts to 30%. We extend their analysis to a model that 1) replicates the empirical wage heterogeneity, 2) endogenizes the individual’s labor supply decision and 3) accounts for contributions-defined pensions of the US social security system. With these more realistic modifications, the optimal replacement ratio is found to amount to approximately 5% and to be insensitive with regard to the aging of the US population; however, lower productivity growth would result in higher optimal pension payments. In addition, the optimal pension scheme is found to be more progressive than the present US pension system.

Suggested Citation

  • Burkhard Heer, 2015. "Optimal Pensions in Aging Economies," CESifo Working Paper Series 5192, CESifo.
    • Handle: RePEc:ces:ceswps:_5192
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5192.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Krueger, Dirk & Ludwig, Alexander, 2007. "On the consequences of demographic change for rates of returns to capital, and the distribution of wealth and welfare," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 49-87, January.
    2. Vincenzo Quadrini, 2000. "Entrepreneurship, Saving and Social Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January.
    3. William B. Peterman & Kamila Sommer, 2019. "How Well Did Social Security Mitigate The Effects Of The Great Recession?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(3), pages 1433-1466, August.
    4. Charles Grant & Christos Koulovatianos & Alexander Michaelides & Mario Padula, 2010. "Evidence on the Insurance Effect of Redistributive Taxation," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 965-973, November.
    5. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    6. Frank Caliendo & Nick Guo & Roozbeh Hosseini, 2014. "Social Security is NOT a Substitute for Annuity Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 739-755, October.
    7. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    8. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
    9. Huggett, Mark & Ventura, Gustavo, 2000. "Understanding why high income households save more than low income households," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 361-397, April.
    10. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 163-193.
    11. Javier Diaz-Gimenez & Vincenzo Quadrini & José-Víctor Ríos-Rull & Santiago Budria Rodriguez, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 26(Sum), pages 2-35.
    12. repec:bla:scandj:v:103:y:2001:i:3:p:445-65 is not listed on IDEAS
    13. Charles Grant & Christos Koulovatianos & Alexander Michaelides & Mario Padula, 2010. "Evidence on the Insurance Effect of Redistributive Taxation," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 965-973, November.
    14. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    15. Storesletten, Kjetil & Telmer, Chris I. & Yaron, Amir, 1999. "The risk-sharing implications of alternative social security arrangements," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 213-259, June.
    16. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
    17. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
    18. repec:bla:jfinan:v:59:y:2004:i:4:p:1481-1509 is not listed on IDEAS
    19. Fehr, Hans & Kallweit, Manuel & Kindermann, Fabian, 2013. "Should pensions be progressive?," European Economic Review, Elsevier, vol. 63(C), pages 94-116.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oliwia Komada & Krzysztof Makarski & Joanna Tyrowicz, 2021. "Progressing towards efficiency: the role for labor tax progression in reforming social security," GRAPE Working Papers 57, GRAPE Group for Research in Applied Economics.
    2. Burkhard Heer & Vito Polito & Mike Wickens, 2023. "Pension Systems (Un)sustainability and Fiscal Constraints: A Comparative Analysis," Working Papers 2023014, The University of Sheffield, Department of Economics.
    3. Makarski, Krzysztof & Tyrowicz, Joanna & Komada, Oliwia, 2021. "Efficiency versus Insurance: Capital Income Taxation and Privatizing Social Security," IZA Discussion Papers 14805, Institute of Labor Economics (IZA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heer, Burkhard & Scharrer, Christian, 2018. "The age-specific burdens of short-run fluctuations in government spending," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 45-75.
    2. Heer, Burkhard & Trede, Mark, 2023. "Age-specific entrepreneurship and PAYG: Public pensions in Germany," Journal of Macroeconomics, Elsevier, vol. 75(C).
    3. Claudio Campanale, 2007. "Increasing Returns to Savings and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 646-675, October.
    4. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 319-354, May.
    5. Daniel Harenberg & Alexander Ludwig, 2019. "Idiosyncratic Risk, Aggregate Risk, And The Welfare Effects Of Social Security," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(2), pages 661-692, May.
    6. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    7. Heer, Burkhard & Sussmuth, Bernd, 2007. "Effects of inflation on wealth distribution: Do stock market participation fees and capital income taxation matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 277-303, January.
    8. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    9. Yongsung Chang & Sun-Bin Kim, 2006. "From Individual To Aggregate Labor Supply: A Quantitative Analysis Based On A Heterogeneous Agent Macroeconomy ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 1-27, February.
    10. Vadym Lepetyuk & Christian A. Stoltenberg, 2012. "Reconciling consumption inequality with income inequality," Working Papers. Serie AD 2012-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    11. Julio Dávila & Jay H. Hong & Per Krusell & José‐Víctor Ríos‐Rull, 2012. "Constrained Efficiency in the Neoclassical Growth Model With Uninsurable Idiosyncratic Shocks," Econometrica, Econometric Society, vol. 80(6), pages 2431-2467, November.
    12. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 843-921, Elsevier.
    13. Matthias Doepke, "undated". "Inflation as a Redistribution Shock: Effects on Aggregates and Welfare," UCLA Economics Online Papers 412, UCLA Department of Economics.
    14. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    15. Matthias Doepke & Martin Schneider, 2005. "Real effects of inflation through the redistribution of nominal wealth," Staff Report 355, Federal Reserve Bank of Minneapolis.
    16. Jess Benhabib & Shenghao Zhu, 2008. "Age, Luck, and Inheritance," NBER Working Papers 14128, National Bureau of Economic Research, Inc.
    17. Bagchi, Shantanu, 2019. "Differential mortality and the progressivity of social security," Journal of Public Economics, Elsevier, vol. 177(C), pages 1-1.
    18. Heer, Burkhard & Maußner, Alfred, 2012. "The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 16(2), pages 278-308, April.
    19. Tiago Berriel & Rodrigo Abreu, 2015. "Long Term Debt and Credit Crisis in a Liquidity Constrained Economy," Textos para discussão 644, Department of Economics PUC-Rio (Brazil).
    20. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.

    More about this item

    Keywords

    optimal social security; progressive pensions; income and wealth distribution; demographic transition;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_5192. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.