Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?

Marko Köthenbürger and Panu Poutvaara
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Marko Köthenbürger: Center for Economic Studies, University of Munich
Authors registered in the RePEc Author Service: Marko Koethenbuerger

Public Economics from EconWPA

Abstract: In earlier literature, the suggested Pareto improvements in pay-as-you- go (PAYG) systems have relied on the presence of externalities or the possibility of intragenerational redistribution. We show that neither assumption is necessary in an economy with intergenerational trade in a fixed factor of production, here labeled as land. Reducing the social security tax rate encourages investment in complementary human capital. Future efficiency gains accruing to land are capitalized in its value which compensates the land-owning pensioners for reduced benefits. We also explain why the PAYG system may have lost its appeal even for pensioners after its introduction.

Keywords: Social Security Reform; Fixed Factor; Pay-As-You-Go System, Capital Gains Taxation (search for similar items in EconPapers)
JEL-codes: H55 H21 I38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu
Date: 2004-04-19
Note: Type of Document - pdf; pages: 34
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Working Paper: Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement? (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwppe:0404008

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