Is an unfunded social security system good or bad for growth? A theoretical analysis of social security systems financed by VAT

Noritaka Maebayashi

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates (i) how unfunded public pensions financed by VAT, as discussed in Japan, affect economic growth, and (ii) whether payroll tax or VAT is the more growth-friendly tax structure for the finance of public pensions. We examine these issues in overlapping generations (OLG) models with parental altruism and find the following results. A public pension system financed by VAT itself may increase economic growth when bequests are operative. By contrast, when bequests are inoperative, public pensions hinder growth unless agents are sufficiently patient. Finally, public pensions financed by VAT have turned out to be more growth-friendly than those financed by payroll tax when bequests are operative.

Keywords: Public pensions financed by VAT; Altruism; Education; Bequests; Growth (search for similar items in EconPapers)
JEL-codes: D64 H20 H55 I20 O40 (search for similar items in EconPapers)
Date: 2018-12-26
New Economics Papers: this item is included in nep-age, nep-dge, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90881

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