Consumption taxation to finance pension payments
Kilian Ruppert,
Matthias Schön and
Nikolai Stähler
No 47/2021, Discussion Papers from Deutsche Bundesbank
Abstract:
This paper assesses how a permanent shift from financing a public pay-as-you-go pension by direct (labour income) taxation towards financing it by indirect(consumption) taxation affects the economy and welfare. To this end, we use anoverlapping-generations-augmented two-region general equilibrium framework withsearch frictions on the labour market. The analysed tax reform partially shifts thetax burden from domestic to foreign producers and lowers marginal costs of domes-tic production and generates positive domestic macroeconomic effects. In addition,the partial postponement of a household's tax burden to retirement leads to highersavings and increases domestic assets. However, for some time after implementationof the tax reform, the policy-induced increase in consumption costs makes retireesand households close to retirement worse off. Moreover, the increase in domesticnet foreign assets implies that consumption of foreign households eventually falls,which stands in contrast to what is commonly found in models without an endoge-nous savings motive.
Keywords: Fiscal devaluation; OLG models; Pension system; Optimal taxation (search for similar items in EconPapers)
JEL-codes: E24 E62 H21 H55 J26 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-age, nep-dge, nep-lma, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://www.econstor.eu/bitstream/10419/248732/1/1784590061.pdf (application/pdf)
Related works:
Journal Article: Consumption taxation to finance pension payments (2024) 
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: https://EconPapers.repec.org/RePEc:zbw:bubdps:472021
Access Statistics for this paper
More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().