Economics at your fingertips  

To what Extent are Public Pensions Pareto-improving? On the Interaction of Means Tested Basic Income and Public Pensions

Robert Fenge and Jakob von Weizsäcker ()

No 197, CESifo Working Paper Series from CESifo

Abstract: If there is a means tested basic income for old age, households will tend to reduce precautionary savings to an inefficiently low level. This might serve as a justification for a public pension system. In a representative agent framework, indeed, the introduction of a compulsory pension s ystem is shown to be Pareto improving. This analysis is extended to two income types where compulsory savings are found to be Pareto improving only up to a point. Increases in contribution rates beyond that point simply result in increasingly regressive (implicit) taxation, potentially eliminating all redistribution via the means tested basic income. Using these results in a pay-as-you-go framework, we show that an unfunded pensions system (with intragenerational fairness) plays a role similar to compulsor y savings in preventing the savings moral hazard and could have the same adverse effects on redistribution if it is too large. If the population is aging, however, an unfunded system with a constant contribution rate is found to become less effective at pr eventing the savings moral hazard. In this case, the introduction of a funded system of the right size is needed to restore Pareto efficiency.

Keywords: Public pensions; compulsory savings; means tested basic income (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link) (application/pdf)

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:

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

Page updated 2022-09-28
Handle: RePEc:ces:ceswps:_197