Rates of return of the German pay-as-you-go pension system

Reinhold Schnabel

No 98-56, Papers from Sonderforschungsbreich 504

Abstract: Due to population aging, contribution rates of the mandatory German pay-as-you-go pension system are expected to increase dramatically during the next decades. This paper estimates the impact on the expected returns of contributions for different cohorts. I show that rates of return for younger cohorts will be between zero and one percent, depending on the demographic and economic scenarios; for some demographic groups they become negative. The implicit tax rates reach levels of around two-thirds of contributions for the youngest cohorts. If decreasing returns reduce incentives for labor supply and system participation, the whole system may become unsustainable. Indeed, I find empirical evidence for a recent decline of voluntary contributions and for a substitution away from taxable employment.

Date: 1998
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Citations: View citations in EconPapers (33)

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https://madoc.bib.uni-mannheim.de/2863/1/dp98_56.pdf

Related works:
Working Paper: Rates of Return of the German Pay-As-You-Go Pension System (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:mnh:spaper:2863

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