Planning for the optimal mix of paygo tax and funded savings
George de Menil (),
Fabrice Murtin () and
Eytan Sheshinski ()
Journal of Pension Economics and Finance, 2006, vol. 5, issue 1, 1-25
We analyze the optimal balance between social security taxation and private saving in the provision of retirement income in dynamically efficient economies, a question at the center of policy debates in Europe and the United States. We consider the relative importance for this question of the return to capital, the internal return of the pay-as-you-go system, and the variabilities and correlation (or independence) of labor earnings and the capital return. We analyse these influences theoretically in the context of a two-period, overlapping generations model with uncertainty. We use a new method to calibrate the model using annual data on GDP per worker and the total real return on equities, from 1950 to 2002, from which we infer the stochastic characteristics of lifetime labor income and the return to lifetime savings in the US, UK, France and Japan. We obtain a range of optimal, steady-state values of the social security tax and the rate of lifetime savings. When the relative rate of risk aversion is assumed to be 2.5, the computed optimal tax varies from 5% in the United States to 22% in Japan. France is similar to Japan, and the UK is in between.
References: Add references at CitEc
Citations: View citations in EconPapers (29) Track citations by RSS feed
Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)
Working Paper: Planning for the optimal mix of paygo tax and funded savings (2006)
Working Paper: Planning for the Optimal Mix of Paygo Tax and Funded Savings (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cup:jpenef:v:5:y:2006:i:01:p:1-25_00
Access Statistics for this article
More articles in Journal of Pension Economics and Finance from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Keith Waters ().