Socially optimal contribution rate and cap in a proportional (DC) pension system

Andras Simonovits ()

Portuguese Economic Journal, 2015, vol. 14, issue 1, 45-63

Abstract: In our model, the government operates a mandatory proportional (DC) pension system to substitute for the low life-cycle savings of the lower-paid myopic workers, while maintaining the incentives of the higher-paid far-sighted ones in contributing to the system. The introduction of an appropriate cap on pension contribution (or its base)—excluding the earnings above the cap from the contribution base—raises the optimal contribution rate, helping more the lower-paid myopic workers and reserving enough room for the saving of higher-paid far-sighted ones. The social welfare is almost independent of the cap in a relatively wide interval but the maximal welfare is higher than the capless welfare by 0.3–4.5 %. Copyright ISEG 2015

Keywords: Proportional (DC) pensions; Contribution rate; Contribution cap; Maximum for taxable earnings; H53; H24 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10258-015-0107-0 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:portec:v:14:y:2015:i:1:p:45-63

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10258/PS2

DOI: 10.1007/s10258-015-0107-0

Access Statistics for this article

Portuguese Economic Journal is currently edited by Luís F. Costa

More articles in Portuguese Economic Journal from Springer, Instituto Superior de Economia e Gestao
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().