Social security with rational and hyperbolic consumers

Abstract

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Families and social security

“…Studies like Nishiyama and Smetters (2007) and Fehr, Habermann and Kindermann (2008) show that when intergenerational redistribution is neutralized via compensating transfers, the insurance benefits of social security dominate the cost arising from labor supply distortions and stronger liquidity constraints both in the US and in Germany. Consequently, moving towards a fully funded system induces efficiency losses.…”

“…11 In the initial equilibrium in reward for the contribution to the pension system, an individual receives pension benefits at old age. Consequently, the contribution to social security is not perceived as a pure tax, but can be split into an implicit savings and an implicit tax component, see Sinn (2000) and Fehr, Habermann and Kindermann (2008). When no more pension claims can be accumulated after the reform, however, the full payroll tax is actually a tax which results in an additional distortion of labor supply.…”

“…) and has been applied by Nishiyama and Smetters (2007) as well as Fehr, Habermann andKindermann (2008) or Fehr, Kallweit andKindermann (2013) in similar stochastic frameworks. Fehr and Kindermann (2015) show how the design of such lump-sum transfers translate into different social welfare functions with different objectives for a social planner.…”

Myopia, redistribution and pensions

“…22 Our model is a two-period static model. For a dynamic analysis, see Fehr et al (2008) who resort to calibrated numerical simulations to show that with myopia the efficiency cost of privatization is higher than without myopia. 23 See also Fehr and Kindermann (2009) who compare the relative merits of standard social security and individual retirement accounts when individuals are more or less myopic.…”

Should Pensions Be Progressive? Yes, at Least in Germany!

“…In addition to the effects from the disability insurance, altering the size of a paygo pension system comes along with different effects, a detail analysis of which can e.g. be found in Fehr, Habermann and Kindermann (2008). Summing up their arguments, the move towards a more funded system induces the following effects:…”