Taxation, Pensions and Saving in a Small Open Economy

Peter Broer (), Ed W M T Westerhout and Ary Lans Bovenberg ()

Scandinavian Journal of Economics, 1994, vol. 96, issue 3, pages 403-24

Abstract: An overlapping generations model of a small open economy is used to explore several policy options aimed at reducing the burden of income taxes and pay-as-you-go contributions on labor income so as to improve the incentives to supply labor. Including the return of funded collective pension plans in the tax base turns out to be counterproductive. Cutting pay-as-you-go benefits, in contrast, succeeds in improving efficiency in general and labor-market incentives in particular. Under specific variants of the funded collective plan, reducing pay-as-you-go benefits even proves to be Pareto welfare improving. Copyright 1994 by The editors of the Scandinavian Journal of Economics.

Date: 1994
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