Optimal Cap on Pension Contributions

Andras Simonovits ()
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Andras Simonovits: Institute of Economics Research Center for Economic and Regional Studies Hungarian Academy of Sciences Mathematical Institute of Budapest University of Technology Department of Economics of CEU

No 1208, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: In our model, the government operates a mandatory proportional (contributive) pension system to substitute for the low life-cycle savings of the low-paid myopes. The socially optimal contribution rate is high (equalizing young- and old-age consumption for them), while an appropriate cap on pension contributions makes room for the saving of high-paid far-sighted workers. In our parameterization (with a Pareto earning distribution), the optimal cap can be determined but its aggregate impact is negligible.

Keywords: pensions; contribution rate; contribution cap; maximum for taxable earnings (search for similar items in EconPapers)
JEL-codes: H24 H53 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2012-03
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 (3)

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