Progressing towards efficiency: the role for labor tax progression in reforming social security

Oliwia Komada, Krzysztof Makarski and Joanna Tyrowicz

No 57, GRAPE Working Papers from GRAPE Group for Research in Applied Economics

Abstract: We study interactions between the progressive labor tax and the social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. Analogously, linking pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for the insurance loss when social security becomes less redistributive.

Keywords: Social security reform; labor income tax; welfare effects (search for similar items in EconPapers)
JEL-codes: C68 D72 E62 H55 J26 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2021
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Related works:
Working Paper: Progressing Towards Efficiency: The Role for Labor Tax Progression in Reforming Social Security (2022)
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