Title: Ageing and the Tax Implied in Public Pension Schemes: Simulations for Selected OECD Countries*
1Ageing and the Tax Implied in Public Pension
SchemesSimulations for Selected OECD Countries
- Robert Fenge / Martin Werding
- Ifo Institute for Economic Research CESifo
Generous support by the Economic and Social
Research Institute (ESRI) of the Japanese
Government is gratefully acknowledged.
2The Impact of Ageing on Public Pensions
- Concepts of measurement
- Net pension liabilities
- General government fiscal balances
- Generational accounting
- Implicit taxes
3Implicit taxes definition 1
- Implicit tax falling on generation t ITt
NPV (contributionst) NPV (benefitst1) - Implicit tax rate qt ITt / wt ttwt
pt1 / (1rt 1) / wt
- Extension to an N-period setting ...
4Implicit taxes definition 2
- straightforward from the simple algebra of
pensions - well-founded in pension theory (Sinn 2000) q0
lt 0 N0q0 ID0 ID0 S Ntqt, t 1?? - easy to apply to an empirical context (Thum /
Weizsaecker 2000 Fenge / Werding 2001) - suited to analyse welfare effects at an
individual level
5Implicit taxes applicationto real-world pension
schemes
- Financial projections for public pension schemes
in selected OECD countries(CESifo Pension Model) - Stylised biographies for representative
individuals (covering disability pensions,
old-age pensions, and survivor pensions) - The rôle of assumptions ...
- Impact of policy responses
6The anatomy of our results Germany 1
7The anatomy of our results Germany 2
8Incremental reforms Germany
9Fixing contribution rates Austria
10CPI indexation (p. after award) France
11CPI indexation (p. at award) UK
12Partial pre-funding USA
13A funded system Japan
14Concluding remarks
- Not surprisingly, ageing causes a general upward
trend in implicit tax rates - Levels and curvatures of tax profiles are highly
country-specific - Effectiveness of different policy measures can be
illustrated - Is tax smoothing useful?
15Annex
16The standardised agents biography
Basic assumptions for the case of Germany.
Probability of disablement and conditional life
expectancies adapted to national averages.
17UK The impact of wage indexation
18UK The effects of contracting-out