Underreported Earnings and Old-Age Pension: An Elementary Model

Andras Simonovits ()
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Andras Simonovits: Institute of Economics, Hungarian Academy of Sciences

No 805, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: This paper analyzes the interconnections of underreported earnings, savings and oldage pension with the help of a most simple, elementary model. The workers can be divided into three groups: 1) well-paid who report their full earnings, 2) well-paid who report only the minimum earnings (evaders) and 3) the poorly paid. We assume that the evaders save a significant part of their hidden earnings for their old age. We compare three pension systems of equal size: (i) the proportional, (ii) the proportional plus basic pension and (iii) the proportional with means testing. Our major result is as follows: if the evaders can be recognized and excluded, then the means-tested system is superior to the basic system.

Keywords: reporting earnings; proportional pensions; basic pensions; meansassisted pensions (search for similar items in EconPapers)
JEL-codes: D91 H55 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2008-05
New Economics Papers: this item is included in nep-age and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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