Efficiency versus insurance: The role for fiscal policy in social s...

Ad

Ad

Ad

Ad

Ad

Ad

Ad

Ad

Ad

Ad

Ad

Ad

Eﬃciency versus insurance:
The role for ﬁscal policy
in social security privatization
Oliwia Komada (WSE and GRAPE)
Krzysz...

Motivation
Longevity ⇑ + Fertility ⇓
2 / 44

Motivation
Longevity ⇑ + Fertility ⇓
• PAYG DB ⇒ ﬁscally unstable if not reformed
(Feldstein for US: deﬁcit +1.4pp of GDP ...

Motivation
Longevity ⇑ + Fertility ⇓
• PAYG DB ⇒ ﬁscally unstable if not reformed
(Feldstein for US: deﬁcit +1.4pp of GDP ...

Motivation
Longevity ⇑ + Fertility ⇓
• PAYG DB ⇒ ﬁscally unstable if not reformed
(Feldstein for US: deﬁcit +1.4pp of GDP ...

Motivation
Longevity ⇑ + Fertility ⇓
• PAYG DB ⇒ ﬁscally unstable if not reformed
(Feldstein for US: deﬁcit +1.4pp of GDP ...

Motivation
Longevity ⇑ + Fertility ⇓
• PAYG DB ⇒ ﬁscally unstable if not reformed
(Feldstein for US: deﬁcit +1.4pp of GDP ...

Motivation
• in deterministic setting horse-race between
• efficiency
• fiscal cost for cohorts paying for the reform
• efficie...

Motivation
• in deterministic setting horse-race between
• efficiency
• fiscal cost for cohorts paying for the reform
• efficie...

Motivation
• in deterministic setting horse-race between
• efficiency
• fiscal cost for cohorts paying for the reform
• efficie...

Motivation
• in deterministic setting horse-race between
• efficiency
• fiscal cost for cohorts paying for the reform
• efficie...

Literature diﬀers in terms of ﬁnancing the reform
4 / 44

Literature diﬀers in terms of ﬁnancing the reform
• Pension system parameters
• contribution rates (20 papers)
e.g. Kumru ...

Literature diﬀers in terms of ﬁnancing the reform
• Pension system parameters
• contribution rates (20 papers)
e.g. Kumru ...

Literature diﬀers in terms of ﬁnancing the reform
• Pension system parameters
• contribution rates (20 papers)
e.g. Kumru ...

What we do
• Challenge the view that in stochastic framework pension system
privatization is welfare deteriorating
• Provi...

Preview of the results
• Nishiyama & Smetters result is NOT universal ⇔ ﬁscal closure matters
7 / 44

Preview of the results
• Nishiyama & Smetters result is NOT universal ⇔ ﬁscal closure matters
• Depending on the ﬁscal clo...

Preview of the results
• Nishiyama & Smetters result is NOT universal ⇔ ﬁscal closure matters
• Depending on the ﬁscal clo...

Our approach
OLG model with idiosyncratic productivity shocks
Procedure
Baseline: PAYG DB with aging and thus deﬁcit
Refor...

Our approach
OLG model with idiosyncratic productivity shocks
Procedure
Baseline: PAYG DB with aging and thus deﬁcit
Refor...

Our approach
OLG model with idiosyncratic productivity shocks
Procedure
Baseline: PAYG DB with aging and thus deﬁcit
Refor...

Our approach
OLG model with idiosyncratic productivity shocks
Procedure
Baseline: PAYG DB with aging and thus deﬁcit
Refor...

Our approach
OLG model with idiosyncratic productivity shocks
Procedure
Baseline: PAYG DB with aging and thus deﬁcit
Refor...

Consumers
• uncertain lifetimes: live for 16 periods, with survival rate πj,t < 1
9 / 44

Consumers
• uncertain lifetimes: live for 16 periods, with survival rate πj,t < 1
• unintended bequest redistributed withi...

Consumers
• uncertain lifetimes: live for 16 periods, with survival rate πj,t < 1
• unintended bequest redistributed withi...

Consumers
• uncertain lifetimes: live for 16 periods, with survival rate πj,t < 1
• unintended bequest redistributed withi...

Consumers
• uncertain lifetimes: live for 16 periods, with survival rate πj,t < 1
• unintended bequest redistributed withi...

Consumers
• uncertain lifetimes: live for 16 periods, with survival rate πj,t < 1
• unintended bequest redistributed withi...

Consumers
• uncertain lifetimes: live for 16 periods, with survival rate πj,t < 1
• unintended bequest redistributed withi...

Pension system
Baseline scenario PAYG DB
• equal beneﬁt for whole cohort (provides insurance)
b ¯J,t = ρ · wavg,t
10 / 44

Pension system
Baseline scenario PAYG DB
• equal beneﬁt for whole cohort (provides insurance)
b ¯J,t = ρ · wavg,t
• indexe...

Pension system
Baseline scenario PAYG DB
• equal beneﬁt for whole cohort (provides insurance)
b ¯J,t = ρ · wavg,t
• indexe...

Pension system
Baseline scenario PAYG DB
• equal beneﬁt for whole cohort (provides insurance)
b ¯J,t = ρ · wavg,t
• indexe...

Pension system
Baseline scenario PAYG DB
• equal beneﬁt for whole cohort (provides insurance)
b ¯J,t = ρ · wavg,t
• indexe...

Pension system
Baseline scenario PAYG DB
• equal beneﬁt for whole cohort (provides insurance)
b ¯J,t = ρ · wavg,t
• indexe...

Government
• Collects taxes
Tt = τl,t(1 − τt)wtLt + τk,trtAt + τc,tCt + Υt
J
j=1
Nj,t
• Finances government spending Gt = ...

Fiscal closures
• Three new closures details
• progressive labor tax ⇒ cohorts with favorable shocks ⇒ labor supply
• capi...

Fiscal closures
• Three new closures details
• progressive labor tax ⇒ cohorts with favorable shocks ⇒ labor supply
• capi...

Fiscal closures
• Three new closures details
• progressive labor tax ⇒ cohorts with favorable shocks ⇒ labor supply
• capi...

Fiscal closures
• Three new closures details
• progressive labor tax ⇒ cohorts with favorable shocks ⇒ labor supply
• capi...

Calibration to replicate 2015 US economy
Preferences
• Preference for leisure φ matches average hours 33%
• Discounting ra...

Calibration to replicate 2015 US economy
Preferences
• Preference for leisure φ matches average hours 33%
• Discounting ra...

Calibration to replicate 2015 US economy
Preferences
• Preference for leisure φ matches average hours 33%
• Discounting ra...

Calibration to replicate 2015 US economy
Preferences
• Preference for leisure φ matches average hours 33%
• Discounting ra...

Calibration to replicate 2015 US economy
Demography is based on the projection by The United Nations.
number of 20-year-ol...

Baseline: PAYG DB with aging and thus deﬁcit
Adjustment in pension parameters
contribution rate ↑ from 7.8% to 9%
tax on p...

Reform: partially funded DC
capital labor
Pension system deﬁcit temporary ↑ from 0% to 2% of GDP
16 / 44

Major effects of the reform
Links pensions to contributions
1. Efficiency gain
2. Loss of insurance
Necessitates fiscal adjust...

Welfare analysis - like Nishiyama & Smetters (2007)
What happens within each experiment?
1. Run no policy reform scenario ...

Result 1: insurance is small & eﬃciency is large
capital tax: the highest welfare gain
due to eﬃciency
progression: the sm...

Result 2: loss of insurance important but not decisive
other closure τk has larger gain than τc towards the end,
→ positiv...

Result 3: public debt help gaining political support
• It helps pensioners (who gain anyway)
• Young always loose (→ are a...

Result 3: public debt help gaining political support
Welfare eﬀect – τk
22 / 44

Result 3: public debt help gaining political support
Welfare eﬀect - τk & debt + τk
23 / 44

Result 3: public debt help gaining political support
Welfare eﬀect - transition - τk & debt + τk
24 / 44

Aggregate welfare eﬀect
Fiscal closure Baseline
τk dτk prog. τ τb τc dτc τl dτl
Reform
τk 0.57 0.56 1.01 0.59 0.50 0.65 0....

Aggregate welfare eﬀect
Fiscal closure Baseline
τk dτk prog. τ τb τc dτc τl dτl
Reform
τk 0.57 0.56 1.01 0.59 0.50 0.65 0....

Aggregate welfare eﬀect and political support
Fiscal closure Baseline
τk dτk prog. τ τb τc dτc τl dτl
Reform
τk 0.57 0.56 ...

Conclusions: ﬁscal closure DOES matter
• Social security reform requires ﬁscal adjustment
• Fiscal closures redistribute a...

Questions or suggestions?
Thank you!
w: grape.org.pl
t: grape org
f: grape.org
e: okomada@grape.org.pl
29 / 44

New ﬁscal closures
GO BACK
• capital tax tax, τk,t
Tt = τl,t(1 − τt)wtLt + τk,trtAt + τc,tCt + Υt
J
j=1
Nj,t
Gt + subsidyt...

Fiscal new closures
GO BACK
• tr1 the lowest income threshold
• trn is the highest income threshold
• n is the number of i...

Fiscal new closures
GO BACK
• tr1 the lowest income threshold
• trn is the highest income threshold
• n is the number of i...

Fiscal closures new in the literature
Total gross labor income (1 − τt)wtLt is a sum of n + 1 components: earnings
taxed b...

Fiscal closures within pension system
GO BACK
To keep pension system balanced government may adjust:
• contribution rate τ...

Fiscal closures outside pension system, subsidyt = 0
GO BACK
• consumption tax, τc,t
• labor tax, τl,t
Tt = τl,t(1 − τt)wt...

Proﬁle of average consumption for τk closure
other closures
in line with Gourinchas & Parker (2002, Econometrica)

Proﬁle of average labor for τk closure
other closures

Proﬁle of average savings for τk closure
other closures

GO BACK
τk debt + τk progression
τ τl debt + τl
τb τc debt + τc

GO BACK
τk debt + τk progression
τ τl debt + τl
τb τc debt +τc

GO BACK
τk debt + τk progression
τ τl debt + τl
τb τc debt +τc

Capital
GO BACK

GO BACK
τk debt + τk progression
τ τl debt + τl
τb τc debt +τc

Model solving
GO BACK
• Gauss-Seidel iterative algorithm
• Guess an initial value for k = K/(zL) and compute prices
• Solv...

Model solving
GO BACK
• Gauss-Seidel iterative algorithm
• Guess an initial value for k = K/(zL) and compute prices
• Solv...

Model solving
GO BACK
• Gauss-Seidel iterative algorithm
• Guess an initial value for k = K/(zL) and compute prices
• Solv...

Model solving
GO BACK
• Gauss-Seidel iterative algorithm
• Guess an initial value for k = K/(zL) and compute prices
• Solv...

Share Slideshare

LinkedIn
Facebook
Twitter

Embed

Size (px)

Show related Slideshows at end

WordPress Shortcode

Link

Share
Email

2024 Trend Updates: What Really Wor... by Search Engine Jou... 1054718 views
Storytelling For The Web: Integrate... by Chiara Aliotta 970719 views
Artificial Intelligence, Data and C... by OECD Directorate ... 905165 views
How to Leverage AI to Boost Employe... by SocialHRCamp 382887 views
2024 State of Marketing Report – by... by Marius Sescu 216911 views
Everything You Need To Know About C... by Expeed Software 234552 views

View on Slideshare

1 of 84 Ad

View on Slideshare

1 of 84 Ad