Skip to main content
SpringerLink
Log in

Compulsory Savings: Efficiency and Redistribution On the Interaction of Means Tested Basic Income and Public Pensions

  • Published:
International Tax and Public Finance Aims and scope Submit manuscript

Abstract

In the presence of means tested basic income for old age, households will tend to reduce precautionary savings to an inefficiently low level. We explore how this might serve as a justification for a compulsory public pension system. In a representative agent framework with two income types, compulsory savings are found to be Pareto-improving up to a point. Beyond that point, increases in contribution rates simply result in increasingly regressive (implicit) taxation. Similar results are found for pay-as-you-go pensions. On the basis of our model we argue that the introduction of a funded pension component may help the German pension system to cope with demographic change more efficiently.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Aaron, H. (1966). "The Social Insurance Paradox." Canadian Journal of Economics and Political Science 32, 371–374.

    Google Scholar 

  • Bernheim, B. D. (1991). "How Strong Are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities." Journal of Political Economy 99, 899–927.

    Google Scholar 

  • Breuer, D. and D. Engels. (1999). Grundinformation und Daten zur Sozialhilfe, Gutachten des ISG Instituts für Sozialforschung und Gesellschaftspolitik, Bundesministerium für Arbeit und Sozialordnung, Köln.

    Google Scholar 

  • Breyer, F. (1989). "On the Intergenerational Pareto Efficiency of Pay-as-you-go Financed Pension." Journal of Institutional and Theoretical Economics 145, 643–658.

    Google Scholar 

  • Browning, E. K. (1975). "Why the Social Insurance Budget is Too Large in a Democracy." Economic Inquiry 13(3), 373–388.

    Google Scholar 

  • Cremer, H. and P. Pestieau (1998). "Social Insurance, Majority Voting and Labor Mobility." Journal of Public Economics 68, 397–420.

    Google Scholar 

  • Feist, H. (2000). Arbeit statt Sozialhilfe. Zur Reform der Grundsicherung in Deutschland, Mohr Siebeck, Tübingen.

    Google Scholar 

  • Feldstein, M. (1985). "The Optimal Level of Social Security Benefits." Quarterly Journal of Economics 10(2), 303–320.

    Google Scholar 

  • Feldstein, M. (1995). "Would Privatizing Social Security Raise Economic Welfare?" NBER Working Paper No. W5281.

  • Fenge, R. (1995). "Pareto-efficiency of the Pay-as-you-go Pension System with Intragenerational Fairness." Finanzarchiv, N.F. 52, 357–363.

    Google Scholar 

  • Hayek, F. A. von. (1960). The Constitution of Liberty, Chicago: University of Chicago Press.

    Google Scholar 

  • Homburg, S. (1990). "The Efficiency of Unfunded Pension Schemes." Journal of Institutional and Theoretical Economics 146, 640–647.

    Google Scholar 

  • Homburg, S. and W. F. Richter. (1989). "Eine effizienzorientierte Reform der GRV." In B. Felderer (ed.), Bevölkerung und Wirtschaft, 183–191, Berlin: Duncker & Humblot.

    Google Scholar 

  • Hubbard, R. G. and K. L. Judd. (1987). "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax." American Economic Review 77, 630–646.

    Google Scholar 

  • Hubbard, R. G., J. Skinner and S. P. Zeldes. (1995). "Precautionary Saving and Social Insurance." Journal of Political Economy 103, 360–399.

    Google Scholar 

  • Kotlifkoff, L. J., K. A. Smetters and J. Walliser. (1998). "Opting out of Social Security and Adverse Selection." NBER Working Paper No. W6430.

  • Laibson, D. (1997). "Golden Eggs and Hyperbolic Discounting." Quarterly Journal of Economics 112, 443–477.

    Google Scholar 

  • Laitner, J. (1988). "Bequests, Gifts, and Social Security." Review of Economic Studies 55, 275–299.

    Google Scholar 

  • Lindbeck, A. and J. W. Weibull. (1988). "Altruism and Time Consistency: The Economics of Fait Accompli." Journal of Political Economy 96, 1165–1182.

    Google Scholar 

  • Mulligan, C. B. and X. Sala-i-Martin. (1999). "Social Security in Theory and Practice (II): Efficiency Theories, Narrative Theories, and Implications for Reform." NBER Working Paper No. W7119.

  • Sjoblom, K. (1985). "Voting for Social Security." Public Choice 45, 225–240.

    Google Scholar 

  • Wissenschaftliche Beirat beim Bundesministerium fürWirtschaft. (1998). Grundlegende Reform der Gesetzlichen Rentenversicherung, Bundesministerium für Wirtschaft, Bonn.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. CESifo, Poschingerstr. 5, 81679, Munich, Germany

    Robert Fenge & Jakob Von Weizsäcker

Authors
  1. Robert Fenge
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Jakob Von Weizsäcker
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Fenge, R., Weizsäcker, J.V. Compulsory Savings: Efficiency and Redistribution On the Interaction of Means Tested Basic Income and Public Pensions. International Tax and Public Finance 8, 637–652 (2001). https://doi.org/10.1023/A:1011288906838

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1011288906838

Search

Navigation