Funding the Transition from Pay-As-You-Go Pensions by Taking Capital Gains on Land

Mark A. Roberts

No 01-13, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: The transition from unfunded pensions may impose a "double burden" on a transitional generation, which must both pay taxes to finance current pension liabilities and save for their own retirement. There are also economic gains which will accrue to future generations from increased rates of savings and capital accumulation. In an economy with land, traded as an asset, increased productivity will raise current and future rents, causing capital gains in the price of land, which may be taxed to alleviate the income tax burden on the transitional generation. For certain parameterizations, reform may be Pareto-improving.

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