We study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform that links pensions to individual incomes reduces distortions associated with social security contributions but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.
Progressing towards efficiency: the role for labor tax progression in reformi...GRAPE
We study interactions between the progressive labor tax and the social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. Analogously, linking pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for the insurance loss when social security becomes less redistributive.
Progressing towards efficiency: the role for labor tax progression in reformi...GRAPE
We study interactions between the progressive labor tax and the social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. Analogously, linking pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for the insurance loss when social security becomes less redistributive.
Progressing into efficiency: the role for labor tax progression in privatizin...GRAPE
We study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates the social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.
Progressing towards efficiency: the role for labor tax progression in reform...GRAPE
We study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates the social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.
Progressing towards eciency: the role for labor tax progression in reforming...GRAPE
We study interactions between progressive labor taxation and social security reform. Increasing
longevity puts scal strain that necessitates the social security reform. The current social security is
redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at
the expense of labor supply distortions. A reform which links pensions to individual incomes reduces
distortions associated with social security contributions, but incurs insurance loss. We show that the
progressive labor tax can partially substitute for the redistribution in social security, thus reducing the
insurance loss.
Taking progressivity research to European CommissionGRAPE
Social security is essentially about insurance. First, it gives insurance against mortality risk by providing annualization. Second, it provides partial insurance against low-income realization by providing intra-cohort redistribution. However, such redistribution is costly because it distorts labor supply incentives. When the link between social security contribution and future benefits becomes weaker, we treat contributions more and more as taxes, not as implicit savings.
With rising longevity, the social security system in many countries is bound to be put under unprecedented fiscal strain. Therefore, some changes appear imperative. Reforms proposed in the literature usually involve linking pensions to individual contributions, thus improving efficiency at the expense of the insurance loss.
In this paper, we propose a novel way of reforming social security. Our reform consists of two elements. First, we replace the redistributive defined benefit payout scheme with a defined contribution payout scheme, which links individual contributions to individual benefits. It raises efficiency as it reduces labor market distortions associated with contribution rates. Second, we propose to accompany this social security reform with adjustments in the progressiveness of labor taxation. Specifically, we increase progression in income taxes.
Thus, we partially replace the redistribution otherwise provided by social security with the one provided within the tax system.
We show that more redistribution during the working periods can fully or partially compensate for the redistribution during retirement. Given the efficiency gains, privatization of social security accompanied by increased labor tax progression can improve welfare. We show that the scope for this improvement crucially depends on the response of labor supply to the social security reform.
We study interactions between progressive labor taxation and social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for
the insurance loss when social security becomes less redistributive.
Progressing towards efficiency: the role for labor tax progression in privati...GRAPE
We show that labor tax progression can effectively substitute for the insurance implicit in redistributive social security. The existing view in the literature is that linking pensions to individual incomes wages reduces distortions associated with social security, but removes insurance. The net outcome of efficiency gain and insurance loss was found to be negative in an economy with idiosyncratic income shocks. Our study shows that privatizing social security can deliver aggregate welfare gains if alternative channels of providing insurance are implemented.
Progressing towards efficiency: the role for labor tax progression in reformi...GRAPE
We study interactions between the progressive labor tax and the social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. Analogously, linking pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for the insurance loss when social security becomes less redistributive.
Progressing towards efficiency: the role for labor tax progression in reformi...GRAPE
We study interactions between the progressive labor tax and the social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. Analogously, linking pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for the insurance loss when social security becomes less redistributive.
Progressing into efficiency: the role for labor tax progression in privatizin...GRAPE
We study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates the social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.
Progressing towards efficiency: the role for labor tax progression in reform...GRAPE
We study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates the social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.
Progressing towards eciency: the role for labor tax progression in reforming...GRAPE
We study interactions between progressive labor taxation and social security reform. Increasing
longevity puts scal strain that necessitates the social security reform. The current social security is
redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at
the expense of labor supply distortions. A reform which links pensions to individual incomes reduces
distortions associated with social security contributions, but incurs insurance loss. We show that the
progressive labor tax can partially substitute for the redistribution in social security, thus reducing the
insurance loss.
Taking progressivity research to European CommissionGRAPE
Social security is essentially about insurance. First, it gives insurance against mortality risk by providing annualization. Second, it provides partial insurance against low-income realization by providing intra-cohort redistribution. However, such redistribution is costly because it distorts labor supply incentives. When the link between social security contribution and future benefits becomes weaker, we treat contributions more and more as taxes, not as implicit savings.
With rising longevity, the social security system in many countries is bound to be put under unprecedented fiscal strain. Therefore, some changes appear imperative. Reforms proposed in the literature usually involve linking pensions to individual contributions, thus improving efficiency at the expense of the insurance loss.
In this paper, we propose a novel way of reforming social security. Our reform consists of two elements. First, we replace the redistributive defined benefit payout scheme with a defined contribution payout scheme, which links individual contributions to individual benefits. It raises efficiency as it reduces labor market distortions associated with contribution rates. Second, we propose to accompany this social security reform with adjustments in the progressiveness of labor taxation. Specifically, we increase progression in income taxes.
Thus, we partially replace the redistribution otherwise provided by social security with the one provided within the tax system.
We show that more redistribution during the working periods can fully or partially compensate for the redistribution during retirement. Given the efficiency gains, privatization of social security accompanied by increased labor tax progression can improve welfare. We show that the scope for this improvement crucially depends on the response of labor supply to the social security reform.
We study interactions between progressive labor taxation and social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for
the insurance loss when social security becomes less redistributive.
Progressing towards efficiency: the role for labor tax progression in privati...GRAPE
We show that labor tax progression can effectively substitute for the insurance implicit in redistributive social security. The existing view in the literature is that linking pensions to individual incomes wages reduces distortions associated with social security, but removes insurance. The net outcome of efficiency gain and insurance loss was found to be negative in an economy with idiosyncratic income shocks. Our study shows that privatizing social security can deliver aggregate welfare gains if alternative channels of providing insurance are implemented.
Progressing towards efficiency: the role for labor tax progression in social ...GRAPE
The existing view in the literature is that linking pensions to individual incomes rather than average wages reduces distortions, but removes insurance and hence cannot raise welfare in an economy with idiosyncratic income shocks. We study alternative channels of providing insurance and efficiency gain from both strengthening the labor supply incentives and higher capital accumulation due to partial funding. We show labor tax progression can effectively substitute for the insurance implicit in redistributive social security. Thus, privatizing social security can deliver aggregate welfare gains even under uncertainty about future incomes.
Welfare effects of fiscal policy in reforming the pension systemGRAPE
Most reforms of the pension systems imply substantial redistribution between cohorts and within a cohort. Fiscal policy, which accompanies these changes may counteract or reinforce this redistribution. Moreover, the literature has argued that the insurance motive implicit in some pension systems plays a major role in determining the welfare eects of the reform: reforms otherwise improving welfare become detrimental to welfare once insurance motive is internalized. We show that this result is not universal, i.e. there exists a variety of scal closures which yield welfare gains and political support for a pension system reform. In an OLG model with uncertainty, we analyze two sets of fiscal adjustments: fiscally neutral adjustments in the pension system (via contribution rate or replacement rate) and balancing pension system by a combination of taxes and/or public debt. We find that fiscally neutral pension system reforms are more likely to yield welfare gains. Many adjustments obtain sufficient political support despite yielding aggregate welfare losses and vice versa. Furthermore, we point to fiscal closures which attenuate and reinforce the relevance of the insurance motive in determining the welfare effects.
On the optimal introduction of a funded pension pillarGRAPE
Jan Woźnica, Marcin Bielecki, Krzysztof Makarski and Joanna Tyrowicz Group for Research in APplied Economics (GRAPE)
15th International Pension Workshop
Paris, May 2017
Starzenie się społeczeństwa w Polsce jest faktem i system ubezpieczeń społecznych musiał w związku z tym zostać zreformowany. W 1999 roku system emerytalny zdefiniowanego świadczenia został zmieniony na system zdefiniowanej składki - czy w tej sytuacji podniesienie wieku emerytalnego wciąż jest konieczne?
Health-care slows the natural growth of mortality, indirectly increasing utility from consumption through longer lifetimes. This paper solves the problem of optimal dynamic consumption and healthcare spending with isoelastic utility, when natural mortality grows exponentially to reflect the Gompertz' law. Optimal consumption and healthcare imply an endogenous mortality law that is asymptotically exponential in the old-age limit, with lower growth rate than natural mortality. Health spending steadily increases with age, both in absolute terms and relative to total spending. Differential access to healthcare with isoelastic effects can account for observed longevity gains across cohorts.
We analyze the political stability of capital funded social security. In particular, using a stylized theoretical framework we study the mechanisms behind governments capturing pension assets in order to lower current taxes. This is followed by an analysis of the analogous mechanisms in a fully-fledged overlapping generations model with intra-cohort heterogeneity. Funding is efficient in a Kaldor-Hicks sense. Individuals vote on capturing the accumulated pension assets and replacing the funded pension pillar with a pay-as-you-go scheme. We show that even if capturing assets reduces welfare in the long run, it always has sufficient political support from those alive at the moment of the vote.
The dangers of policy experiments Initial beliefs under adaptive learningGRAPE
The paper studies the implication of initial beliefs and associated confidence on the system’s
dynamics under adaptive learning. We first illustrate how prior beliefs determine learning dynamics
and the evolution of endogenous variables in a small DSGE model with credit-constrained agents,
in which rational expectations are replaced by constant-gain adaptive learning. We then examine
how discretionary experimenting with new macroeconomic policies is affected by expectations that
agents have in relation to these policies. More specifically, we show that a newly introduced macroprudential policy that aims at making leverage counter-cyclical can lead to substantial increase in
fluctuations under learning, when the economy is hit by financial shocks, if beliefs reflect imperfect
information about the policy experiment. This is in the stark contrast to the effects of such policy
under rational expectations.
Pension (In)Stability of Social Security ReformGRAPE
In this paper we consider an economy populated by overlapping generations, who vote on abolishing the funded system and replacing it with the pay-as-you-go scheme (i.e. unprivatizing the pension system). We compare politically stable and politically unstable reforms and show that even if the funded system is overall welfare enhancing, the cohort distribution of benefits along the transition path turns unprivatizing social security politically favorable.
Political (In)Stability of Social Security ReformGRAPE
We analyze the political stability of welfare enhancing privatization of the social security. We consider an economy populated by overlapping generations, who vote on abolishing the funded system and replacing it with the pay-as-you-go scheme, i.e. “unprivatizing” the pension system. We show that even if abolishing the system reduces overall welfare, the distribution of benefits across cohorts along the transition path implies that some ways of “unprivatizing” social security are always politically favored
Welfare effects of fiscal closures when implementing pension reformsGRAPE
This presentation covers an analysis on how do fiscal closures matter for the welfare effects of implementing the pension reforms. We develop an OLG model and calibrate it to the case of actual reform implemented in Poland.
Econ 3022 MacroeconomicsSpring 2020Final Exam - Due A.docxtidwellveronique
Econ 3022: Macroeconomics
Spring 2020
Final Exam - Due April 24th 11:59pm
1 Multiple Choice Questions (5 points each)
Question 1 What is Ricardian Equivalence?
(a) The economic hypothesis that agents’ decisions are una↵ected by the timing of taxation
and government spending
(b) The economic hypothesis that agents’ decisions are a↵ected by the timing of taxation
and government spending
(c) The economic hypothesis that taxation must be equal every period.
(d) The economic hypothesis that it is impossible to individually identify taxation today
and taxation tomorrow.
Question 2 Consider the consumer problem from the microeconomic foundations we dis-
cussed in class. Suppose the wage decreases. What do we expect to happen to house-
hold labor supply?
(a) Unclear
(b) Increase
(c) Decrease
(d) Stay constant
1
Question 3 Consider the consumer problem from the real intertemporal model. Which of
the following conditions must be satisfied at the solution?
(a) MRSl,c = w
(b) MRSc0,l0 =
1
w0
(c) MRSl,l0 =
w(1+r)
w0
(d) All of the above
Question 4 If total factor productivity tomorrow, z0, increases. What should happen to
investment?
(a) Unclear
(b) Increase
(c) Decrease
(d) Stay constant
Question 5 Consider the standard Solow model from class where the production function
is zF (K, N) = zK↵N1�↵. What is the golden rule savings rate?
(a) sgr = 1 � ↵
(b) sgr = ↵
(c) The savings rate that leads to a steady state with the highest level of income per capita
(d) The savings rate that leads to a steady state with the lowest level of income per capita
2
2 Economic Growth (20 points)
Consider the Solow Growth Model seen in class where the production function is Cobb-
Douglas and given by:
Y = zK↵ (N)
1�↵
where 0 < ↵ < 1 and z is a constant. Let s be the savings rate of this economy, so that
aggregate savings is just a constant fraction of aggregate output: S = sY . Let n be the rate
of population growth, so N
0
N
= 1 + n. Finally, let d be the depreciation rate, and assume the
law of motion for aggregate capital is given by:
K
0 = (1 � d) K + I
(a) (5 pts) Find an expression for the steady state level of capital per capita (k⇤) that only
depends on parameters of the model. Clearly show your work.
(b) (5 pts) Discuss how per capita variables (consumption and income) as well as aggregate
variables (consumption, capital stock, output, and savings) behave in steady state.
Now, suppose that we have a linear production function given by
Y = zK
where z is a constant. Let s be the savings rate of this economy, so that aggregate savings
is just a constant fraction of aggregate output: S = sY . Let n be the rate of population
growth, so N
0
N
= 1 + n. Finally, let d be the depreciation rate, and assume the law of motion
for aggregate capital is given by:
K
0 = (1 � d) K + I
(c) (5 pts) Find an expression for the level of per capita capital stock today as a function
of per capita capital stock tomorrow. Clea.
Efficiency versus insurance: The role for fiscal policy in social security pr...Oliwia Komada
Pension system reforms imply substantial redistribution between cohorts and within cohorts. They also implicitly affect the scope of risk sharing in societies. Linking pensions to individual incomes increases efficiency but reduces the insurance motive implicit in Beveridgean systems. The existing view in the literature argues that the insurance motive dominates the efficiency gains when evaluating the welfare effects. We show that this result is not universal: there exist ways to increase efficiency or compensate the loss of insurance, assuring welfare gains from pension system reform even in economies with uninsurable idiosyncratic income shocks. The fiscal closure, which necessarily accompanies the changes in the pension system, may boost efficiency and/or make up for lower insurance in the pension system. Indeed, fiscal closures inherently interact with the effects of pension system reform, counteracting or reinforcing the original effects. By analyzing a variety of fiscal closures, we reconcile our result with the earlier literature. We also study the political economy context and show that political support is feasible depending on the fiscal closure.
Welfare effects of fiscal policy in reforming the pension systemGRAPE
Most reforms of the pension systems imply substantial adjustments in between cohort and within cohort redistribution. Fiscal policy, which accompanies these changes may counteract or reinforce this redistribution. In an OLG model with uncertainty, we show that fiscal closure is crucial for determining the welfare effects of the pension system reforms as well as political support for introducing it. We analyze two sets of fiscal adjustments: fiscally neutral adjustments in the pension system (via contribution rate or replacement rate) and balancing pension system by a combination of taxes and/or public debt. We find that in general, fiscally neutral pension system reforms are more likely to yield welfare gains. Many adjustments obtain sufficient political support despite yielding aggregate welfare losses and vice versa. We show the role of the insurance motive implicit in some pension systems for determining the welfare effects of the reform and point to fiscal closures which attenuate and reinforce the relevance of this motive for determining the welfare effects.
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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Progressing towards efficiency: the role for labor tax progression in social ...GRAPE
The existing view in the literature is that linking pensions to individual incomes rather than average wages reduces distortions, but removes insurance and hence cannot raise welfare in an economy with idiosyncratic income shocks. We study alternative channels of providing insurance and efficiency gain from both strengthening the labor supply incentives and higher capital accumulation due to partial funding. We show labor tax progression can effectively substitute for the insurance implicit in redistributive social security. Thus, privatizing social security can deliver aggregate welfare gains even under uncertainty about future incomes.
Welfare effects of fiscal policy in reforming the pension systemGRAPE
Most reforms of the pension systems imply substantial redistribution between cohorts and within a cohort. Fiscal policy, which accompanies these changes may counteract or reinforce this redistribution. Moreover, the literature has argued that the insurance motive implicit in some pension systems plays a major role in determining the welfare eects of the reform: reforms otherwise improving welfare become detrimental to welfare once insurance motive is internalized. We show that this result is not universal, i.e. there exists a variety of scal closures which yield welfare gains and political support for a pension system reform. In an OLG model with uncertainty, we analyze two sets of fiscal adjustments: fiscally neutral adjustments in the pension system (via contribution rate or replacement rate) and balancing pension system by a combination of taxes and/or public debt. We find that fiscally neutral pension system reforms are more likely to yield welfare gains. Many adjustments obtain sufficient political support despite yielding aggregate welfare losses and vice versa. Furthermore, we point to fiscal closures which attenuate and reinforce the relevance of the insurance motive in determining the welfare effects.
On the optimal introduction of a funded pension pillarGRAPE
Jan Woźnica, Marcin Bielecki, Krzysztof Makarski and Joanna Tyrowicz Group for Research in APplied Economics (GRAPE)
15th International Pension Workshop
Paris, May 2017
Starzenie się społeczeństwa w Polsce jest faktem i system ubezpieczeń społecznych musiał w związku z tym zostać zreformowany. W 1999 roku system emerytalny zdefiniowanego świadczenia został zmieniony na system zdefiniowanej składki - czy w tej sytuacji podniesienie wieku emerytalnego wciąż jest konieczne?
Health-care slows the natural growth of mortality, indirectly increasing utility from consumption through longer lifetimes. This paper solves the problem of optimal dynamic consumption and healthcare spending with isoelastic utility, when natural mortality grows exponentially to reflect the Gompertz' law. Optimal consumption and healthcare imply an endogenous mortality law that is asymptotically exponential in the old-age limit, with lower growth rate than natural mortality. Health spending steadily increases with age, both in absolute terms and relative to total spending. Differential access to healthcare with isoelastic effects can account for observed longevity gains across cohorts.
We analyze the political stability of capital funded social security. In particular, using a stylized theoretical framework we study the mechanisms behind governments capturing pension assets in order to lower current taxes. This is followed by an analysis of the analogous mechanisms in a fully-fledged overlapping generations model with intra-cohort heterogeneity. Funding is efficient in a Kaldor-Hicks sense. Individuals vote on capturing the accumulated pension assets and replacing the funded pension pillar with a pay-as-you-go scheme. We show that even if capturing assets reduces welfare in the long run, it always has sufficient political support from those alive at the moment of the vote.
The dangers of policy experiments Initial beliefs under adaptive learningGRAPE
The paper studies the implication of initial beliefs and associated confidence on the system’s
dynamics under adaptive learning. We first illustrate how prior beliefs determine learning dynamics
and the evolution of endogenous variables in a small DSGE model with credit-constrained agents,
in which rational expectations are replaced by constant-gain adaptive learning. We then examine
how discretionary experimenting with new macroeconomic policies is affected by expectations that
agents have in relation to these policies. More specifically, we show that a newly introduced macroprudential policy that aims at making leverage counter-cyclical can lead to substantial increase in
fluctuations under learning, when the economy is hit by financial shocks, if beliefs reflect imperfect
information about the policy experiment. This is in the stark contrast to the effects of such policy
under rational expectations.
Pension (In)Stability of Social Security ReformGRAPE
In this paper we consider an economy populated by overlapping generations, who vote on abolishing the funded system and replacing it with the pay-as-you-go scheme (i.e. unprivatizing the pension system). We compare politically stable and politically unstable reforms and show that even if the funded system is overall welfare enhancing, the cohort distribution of benefits along the transition path turns unprivatizing social security politically favorable.
Political (In)Stability of Social Security ReformGRAPE
We analyze the political stability of welfare enhancing privatization of the social security. We consider an economy populated by overlapping generations, who vote on abolishing the funded system and replacing it with the pay-as-you-go scheme, i.e. “unprivatizing” the pension system. We show that even if abolishing the system reduces overall welfare, the distribution of benefits across cohorts along the transition path implies that some ways of “unprivatizing” social security are always politically favored
Welfare effects of fiscal closures when implementing pension reformsGRAPE
This presentation covers an analysis on how do fiscal closures matter for the welfare effects of implementing the pension reforms. We develop an OLG model and calibrate it to the case of actual reform implemented in Poland.
Econ 3022 MacroeconomicsSpring 2020Final Exam - Due A.docxtidwellveronique
Econ 3022: Macroeconomics
Spring 2020
Final Exam - Due April 24th 11:59pm
1 Multiple Choice Questions (5 points each)
Question 1 What is Ricardian Equivalence?
(a) The economic hypothesis that agents’ decisions are una↵ected by the timing of taxation
and government spending
(b) The economic hypothesis that agents’ decisions are a↵ected by the timing of taxation
and government spending
(c) The economic hypothesis that taxation must be equal every period.
(d) The economic hypothesis that it is impossible to individually identify taxation today
and taxation tomorrow.
Question 2 Consider the consumer problem from the microeconomic foundations we dis-
cussed in class. Suppose the wage decreases. What do we expect to happen to house-
hold labor supply?
(a) Unclear
(b) Increase
(c) Decrease
(d) Stay constant
1
Question 3 Consider the consumer problem from the real intertemporal model. Which of
the following conditions must be satisfied at the solution?
(a) MRSl,c = w
(b) MRSc0,l0 =
1
w0
(c) MRSl,l0 =
w(1+r)
w0
(d) All of the above
Question 4 If total factor productivity tomorrow, z0, increases. What should happen to
investment?
(a) Unclear
(b) Increase
(c) Decrease
(d) Stay constant
Question 5 Consider the standard Solow model from class where the production function
is zF (K, N) = zK↵N1�↵. What is the golden rule savings rate?
(a) sgr = 1 � ↵
(b) sgr = ↵
(c) The savings rate that leads to a steady state with the highest level of income per capita
(d) The savings rate that leads to a steady state with the lowest level of income per capita
2
2 Economic Growth (20 points)
Consider the Solow Growth Model seen in class where the production function is Cobb-
Douglas and given by:
Y = zK↵ (N)
1�↵
where 0 < ↵ < 1 and z is a constant. Let s be the savings rate of this economy, so that
aggregate savings is just a constant fraction of aggregate output: S = sY . Let n be the rate
of population growth, so N
0
N
= 1 + n. Finally, let d be the depreciation rate, and assume the
law of motion for aggregate capital is given by:
K
0 = (1 � d) K + I
(a) (5 pts) Find an expression for the steady state level of capital per capita (k⇤) that only
depends on parameters of the model. Clearly show your work.
(b) (5 pts) Discuss how per capita variables (consumption and income) as well as aggregate
variables (consumption, capital stock, output, and savings) behave in steady state.
Now, suppose that we have a linear production function given by
Y = zK
where z is a constant. Let s be the savings rate of this economy, so that aggregate savings
is just a constant fraction of aggregate output: S = sY . Let n be the rate of population
growth, so N
0
N
= 1 + n. Finally, let d be the depreciation rate, and assume the law of motion
for aggregate capital is given by:
K
0 = (1 � d) K + I
(c) (5 pts) Find an expression for the level of per capita capital stock today as a function
of per capita capital stock tomorrow. Clea.
Efficiency versus insurance: The role for fiscal policy in social security pr...Oliwia Komada
Pension system reforms imply substantial redistribution between cohorts and within cohorts. They also implicitly affect the scope of risk sharing in societies. Linking pensions to individual incomes increases efficiency but reduces the insurance motive implicit in Beveridgean systems. The existing view in the literature argues that the insurance motive dominates the efficiency gains when evaluating the welfare effects. We show that this result is not universal: there exist ways to increase efficiency or compensate the loss of insurance, assuring welfare gains from pension system reform even in economies with uninsurable idiosyncratic income shocks. The fiscal closure, which necessarily accompanies the changes in the pension system, may boost efficiency and/or make up for lower insurance in the pension system. Indeed, fiscal closures inherently interact with the effects of pension system reform, counteracting or reinforcing the original effects. By analyzing a variety of fiscal closures, we reconcile our result with the earlier literature. We also study the political economy context and show that political support is feasible depending on the fiscal closure.
Welfare effects of fiscal policy in reforming the pension systemGRAPE
Most reforms of the pension systems imply substantial adjustments in between cohort and within cohort redistribution. Fiscal policy, which accompanies these changes may counteract or reinforce this redistribution. In an OLG model with uncertainty, we show that fiscal closure is crucial for determining the welfare effects of the pension system reforms as well as political support for introducing it. We analyze two sets of fiscal adjustments: fiscally neutral adjustments in the pension system (via contribution rate or replacement rate) and balancing pension system by a combination of taxes and/or public debt. We find that in general, fiscally neutral pension system reforms are more likely to yield welfare gains. Many adjustments obtain sufficient political support despite yielding aggregate welfare losses and vice versa. We show the role of the insurance motive implicit in some pension systems for determining the welfare effects of the reform and point to fiscal closures which attenuate and reinforce the relevance of this motive for determining the welfare effects.
Similar to Progressing towards efficiency: the role for labor tax progression in reforming social security (20)
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
Revisiting gender board diversity and firm performanceGRAPE
Cel: oszacować wpływ inkluzywności władz spółek na ich wyniki.
Co wiemy?
• Większość firm nie ma równosci płci w organach (ILO, 2015)
• Większość firm nie ma w ogóle kobiet we władzach
Demographic transition and the rise of wealth inequalityGRAPE
We study the contribution of rising longevity to the rise of wealth inequality in the U.S. over the last seventy years. We construct an OLG model with multiple sources of inequality, closely calibrated to the data. Our main finding is that improvements in old-age longevity explain about 30% of the observed rise in wealth inequality. This magnitude is similar to previously emphasized channels associated with income inequality and the tax system. The contribution of demographics is bound to raise wealth inequality further in the decades to come.
(Gender) tone at the top: the effect of board diversity on gender inequalityGRAPE
The research explores to what extent the presence of women on board affects gender inequality downstream. We find that increasing presence reduces gender inequality. To avoid reverse causality, we propose a new instrument: the share of household consumption in total output. We extend the analysis to recover the effect of a single woman on board (tokenism(
Gender board diversity spillovers and the public eyeGRAPE
A range of policy recommendations mandating gender board quotas is based on the idea that "women help women". We analyze potential gender diversity spillovers from supervisory to top managerial positions over three decades in Europe. Contrary to previous studies which worked with stock listed firms or were region locked, we use a large data base of roughly 2 000 000 firms. We find evidence that women do not help women in corporate Europe, unless the firm is stock listed. Only within public firms, going from no woman to at least one woman on supervisory position is associated with a 10-15% higher probability of appointing at least one woman to the executive position. This pattern aligns with various managerial theories, suggesting that external visibility influences corporate gender diversity practices. The study implies that diversity policies, while impactful in public firms, have limited
effectiveness in promoting gender diversity in corporate Europe.
Tone at the top: the effects of gender board diversity on gender wage inequal...GRAPE
We address the gender wage gap in Europe, focusing on the impact of female representation in executive and non-executive boards. We use a novel dataset to identify gender board diversity across European firms, which covers a comprehensive sample of private firms in addition to publicly listed ones. Our study spans three waves of the Structure of Earnings Survey, covering 26 countries and multiple industries. Despite low prevalence of female representation and the complex nature of gender wage inequality, our findings reveal a robust causal link: increased gender diversity significantly decreases the adjusted gender wage gap. We also demonstrate that to meaningfully impact gender wage gaps, the presence of a single female representative in leadership is insufficient.
Gender board diversity spillovers and the public eyeGRAPE
A range of policy recommendations mandating gender board quotas is based on the idea that "women help women". We analyze potential gender diversity spillovers from supervisory to top managerial positions over three decades in Europe. Contrary to previous studies which worked with stock listed firms or were region locked, we use a large data base of roughly 2 000 000 firms. We find evidence that women do not help women in corporate Europe, unless the firm is stock listed. Only within public firms, going from no woman to at least one woman on supervisory position is associated with a 10-15\% higher probability of appointing at least one woman to the executive position. This pattern aligns with the Public Eye Managerial Theory, suggesting that external visibility influences corporate gender diversity practices. The study implies that diversity policies, while impactful in public firms, have limited effectiveness in promoting gender diversity in corporate Europe.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large New Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economies, we use this model to provide comparative statics across past and contemporaneous age structures of the working population. Thus, we quantify the extent to which the response of labor markets to adverse TFP shocks and monetary policy shocks becomes muted with the aging of the working population. Our findings have important policy implications for European labor markets and beyond. For example, the working population is expected to further age in Europe, whereas the share of young workers will remain robust in the US. Our results suggest a partial reversal of the European-US unemployment puzzle. Furthermore, with the aging population, lowering inflation volatility is less costly in terms of higher unemployment volatility. It suggests that optimal monetary policy should be more hawkish in the older society.
Evidence concerning inequality in ability to realize aspirations is prevalent: overall, in specialized segments of the labor market, in self-employment and high-aspirations environments. Empirical literature and public debate are full of case studies and comprehensive empirical studies documenting the paramount gap between successful individuals (typically ethnic majority men) and those who are less likely to “make it” (typically ethnic minority and women). So far the drivers of these disparities and their consequences have been studied much less intensively, due to methodological constraints and shortage of appropriate data. This project proposes significant innovations to overcome both types of barriers and push the frontier of the research agenda on equality in reaching aspirations.
Overall, project is interdisciplinary, combining four fields: management, economics, quantitative methods and psychology. An important feature of this project is that it offers a diversified methodological perspective, combining applied microeconometrics, as well as experimental methods.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the what's app number of my personal pi vendor to trade with.
+12349014282
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the what'sapp information for my personal pi vendor.
+12349014282
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the what'sapp contact of my personal pi merchant to trade with
+12349014282
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the what'sapp number.
+12349014282
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdfcoingabbar
Introducing BONKMILLON - The Most Bonkers Meme Coin Yet
Let's be real for a second – the world of meme coins can feel like a bit of a circus at times. Every other day, there's a new token promising to take you "to the moon" or offering some groundbreaking utility that'll change the game forever. But how many of them actually deliver on that hype?
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdf
Progressing towards efficiency: the role for labor tax progression in reforming social security
1. Progressing into efficiency:
the role for labor tax progression in privatizing social security
Oliwia Komada (FAME|GRAPE)
Krzysztof Makarski (FAME|GRAPE and Warsaw School of Economics)
Joanna Tyrowicz (FAME|GRAPE, University of Regensburg, and IZA)
EPCS, Hannover, 2023
1 / 34
3. Motivation
Social security is essentially about insurance:
• old age (between cohorts) & mortality (annuitized)
Benartzi et al. 2011, Bruce & Turnovsky 2013, Reichling & Smetters 2015, Caliendo et al. 2017
• low income (within cohort redistribution)
Cooley & Soares 1996, Tabellini 2000
3 / 34
4. Motivation
Social security is essentially about insurance:
• old age (between cohorts) & mortality (annuitized)
Benartzi et al. 2011, Bruce & Turnovsky 2013, Reichling & Smetters 2015, Caliendo et al. 2017
• low income (within cohort redistribution)
Cooley & Soares 1996, Tabellini 2000
Prevailing consensus:
• privatization of social security brings efficiency gains,
• but reduces (within cohort) redistribution
• this insurance loss reduces overall welfare effect of such reforms
e.g. Nishiyama & Smetters (2007)
3 / 34
5. Motivation
Social security is essentially about insurance:
• old age (between cohorts) & mortality (annuitized)
Benartzi et al. 2011, Bruce & Turnovsky 2013, Reichling & Smetters 2015, Caliendo et al. 2017
• low income (within cohort redistribution)
Cooley & Soares 1996, Tabellini 2000
Prevailing consensus:
• privatization of social security brings efficiency gains,
• but reduces (within cohort) redistribution
• this insurance loss reduces overall welfare effect of such reforms
e.g. Nishiyama & Smetters (2007)
Our approach: replace redistribution in social security with tax progression
3 / 34
6. Motivation
Social security is essentially about insurance:
• old age (between cohorts) & mortality (annuitized)
Benartzi et al. 2011, Bruce & Turnovsky 2013, Reichling & Smetters 2015, Caliendo et al. 2017
• low income (within cohort redistribution)
Cooley & Soares 1996, Tabellini 2000
Prevailing consensus:
• privatization of social security brings efficiency gains,
• but reduces (within cohort) redistribution
• this insurance loss reduces overall welfare effect of such reforms
e.g. Nishiyama & Smetters (2007)
Our approach: replace redistribution in social security with tax progression
Bottom line: shift insurance from retirement to working period →
improve efficiency of social security → raise welfare.
3 / 34
28. Redistribution through social security
Denote: PV Pen
t (θ) =
b2,t+1(θ)
1 + r
− τwt ωθℓ1,t (θ), then:
θH gains from less redistribution in social security
∆PV Pen
t (θH ) = PV Pen,BIS
t (θH ) − PV Pen,BEV
t (θH ) =
τwt
2
(ωH ℓBIS
(θH ) − ωLℓBEV
1 (θL)
| {z }
redistribution effect>0
]
11 / 34
29. Redistribution through social security
Denote: PV Pen
t (θ) =
b2,t+1(θ)
1 + r
− τwt ωθℓ1,t (θ), then:
θH gains from less redistribution in social security
∆PV Pen
t (θH ) = PV Pen,BIS
t (θH ) − PV Pen,BEV
t (θH ) =
τwt
2
(ωH ℓBIS
(θH ) − ωLℓBEV
1 (θL)
| {z }
redistribution effect>0
]
θL loses from less redistribution in social security
∆PV Pen
t (θL) = PV Pen,BIS
t (θL) − PV Pen,BEV
t (θL) =
τwt
2
(ωLℓBEV
1 (θL) − ωH ℓBIS
(θH )
| {z }
redistribution effect<0
]
11 / 34
30. Redistribution through social security
Denote: PV Pen
t (θ) =
b2,t+1(θ)
1 + r
− τwt ωθℓ1,t (θ), then:
θH gains from less redistribution in social security
∆PV Pen
t (θH ) = PV Pen,BIS
t (θH ) − PV Pen,BEV
t (θH ) =
τwt
2
(ωH ℓBIS
(θH ) − ωLℓBEV
1 (θL)
| {z }
redistribution effect>0
]
θL loses from less redistribution in social security
∆PV Pen
t (θL) = PV Pen,BIS
t (θL) − PV Pen,BEV
t (θL) =
τwt
2
(ωLℓBEV
1 (θL) − ωH ℓBIS
(θH )
| {z }
redistribution effect<0
]
social security redistribution effect −→ benefits θH , harms: θL,
11 / 34
31. Redistribution through social security
Denote: PV Pen
t (θ) =
b2,t+1(θ)
1 + r
− τwt ωθℓ1,t (θ), then:
θH gains from less redistribution in social security
∆PV Pen
t (θH ) = PV Pen,BIS
t (θH ) − PV Pen,BEV
t (θH ) =
τwt
2
(ωH ℓBIS
(θH ) − ωLℓBEV
1 (θL)
| {z }
redistribution effect>0
]
θL loses from less redistribution in social security
∆PV Pen
t (θL) = PV Pen,BIS
t (θL) − PV Pen,BEV
t (θL) =
τwt
2
(ωLℓBEV
1 (θL) − ωH ℓBIS
(θH )
| {z }
redistribution effect<0
]
social security redistribution effect −→ benefits θH , harms: θL, can θL be compensated through taxes?
11 / 34
32. Redistribution through tax system
1. % ∆ in labor supply is equal for both productivity types and increases with η
ℓBIS
(θ) − ℓBEV
(θ)
ℓBEV (θ)
=
(1 − τℓ(1 − τ))
(1 − τ − τℓ(1 − τ))
η
− 1 ≡ ξη
− 1
12 / 34
33. Redistribution through tax system
1. % ∆ in labor supply is equal for both productivity types and increases with η
ℓBIS
(θ) − ℓBEV
(θ)
ℓBEV (θ)
=
(1 − τℓ(1 − τ))
(1 − τ − τℓ(1 − τ))
η
− 1 ≡ ξη
− 1
2. % ∆ in government revenue increases with η (Frisch elasticity) ⇒ pool for µt ↑
RBIS
− RBEV
RBEV
≡ ξη
− 1
12 / 34
34. Redistribution through tax system
1. % ∆ in labor supply is equal for both productivity types and increases with η
ℓBIS
(θ) − ℓBEV
(θ)
ℓBEV (θ)
=
(1 − τℓ(1 − τ))
(1 − τ − τℓ(1 − τ))
η
− 1 ≡ ξη
− 1
2. % ∆ in government revenue increases with η (Frisch elasticity) ⇒ pool for µt ↑
RBIS
− RBEV
RBEV
≡ ξη
− 1
3. The change in net tax transfer for θL positive and for θH negative
∆µt − τℓ(1 − τ)ωLwt ∆ℓt (θL) 0 and ∆µt − τℓ(1 − τ)ωH wt ∆ℓt (θH ) 0
12 / 34
35. Redistribution through tax system
1. % ∆ in labor supply is equal for both productivity types and increases with η
ℓBIS
(θ) − ℓBEV
(θ)
ℓBEV (θ)
=
(1 − τℓ(1 − τ))
(1 − τ − τℓ(1 − τ))
η
− 1 ≡ ξη
− 1
2. % ∆ in government revenue increases with η (Frisch elasticity) ⇒ pool for µt ↑
RBIS
− RBEV
RBEV
≡ ξη
− 1
3. The change in net tax transfer for θL positive and for θH negative
∆µt − τℓ(1 − τ)ωLwt ∆ℓt (θL) 0 and ∆µt − τℓ(1 − τ)ωH wt ∆ℓt (θH ) 0
12 / 34
36. Redistribution through tax system
1. % ∆ in labor supply is equal for both productivity types and increases with η
ℓBIS
(θ) − ℓBEV
(θ)
ℓBEV (θ)
=
(1 − τℓ(1 − τ))
(1 − τ − τℓ(1 − τ))
η
− 1 ≡ ξη
− 1
2. % ∆ in government revenue increases with η (Frisch elasticity) ⇒ pool for µt ↑
RBIS
− RBEV
RBEV
≡ ξη
− 1
3. The change in net tax transfer for θL positive and for θH negative
∆µt − τℓ(1 − τ)ωLwt ∆ℓt (θL) 0 and ∆µt − τℓ(1 − τ)ωH wt ∆ℓt (θH ) 0
Reform + lump sum transfers bundle =⇒ positive (increasing in η) transfers from θH -type households to
the θL-type households through the tax system.
12 / 34
37. Redistribution through tax system
1. % ∆ in labor supply is equal for both productivity types and increases with η
ℓBIS
(θ) − ℓBEV
(θ)
ℓBEV (θ)
=
(1 − τℓ(1 − τ))
(1 − τ − τℓ(1 − τ))
η
− 1 ≡ ξη
− 1
2. % ∆ in government revenue increases with η (Frisch elasticity) ⇒ pool for µt ↑
RBIS
− RBEV
RBEV
≡ ξη
− 1
3. The change in net tax transfer for θL positive and for θH negative
∆µt − τℓ(1 − τ)ωLwt ∆ℓt (θL) 0 and ∆µt − τℓ(1 − τ)ωH wt ∆ℓt (θH ) 0
Reform + lump sum transfers bundle =⇒ positive (increasing in η) transfers from θH -type households to
the θL-type households through the tax system.
Tax system redistribution effect −→ benefits θL at the expense of θH ,
12 / 34
38. Redistribution through tax system
1. % ∆ in labor supply is equal for both productivity types and increases with η
ℓBIS
(θ) − ℓBEV
(θ)
ℓBEV (θ)
=
(1 − τℓ(1 − τ))
(1 − τ − τℓ(1 − τ))
η
− 1 ≡ ξη
− 1
2. % ∆ in government revenue increases with η (Frisch elasticity) ⇒ pool for µt ↑
RBIS
− RBEV
RBEV
≡ ξη
− 1
3. The change in net tax transfer for θL positive and for θH negative
∆µt − τℓ(1 − τ)ωLwt ∆ℓt (θL) 0 and ∆µt − τℓ(1 − τ)ωH wt ∆ℓt (θH ) 0
Reform + lump sum transfers bundle =⇒ positive (increasing in η) transfers from θH -type households to
the θL-type households through the tax system.
Tax system redistribution effect −→ benefits θL at the expense of θH , can it fully compensate θL for
the loss of redistribution in social security?
12 / 34
39. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
13 / 34
40. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
2 θL under BIS work more, have (most likely) lower pension benefits and pay lower taxes
(efficiency ↑ social security benefits ↓ tax liability ↓)
13 / 34
41. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
2 θL under BIS work more, have (most likely) lower pension benefits and pay lower taxes
(efficiency ↑ social security benefits ↓ tax liability ↓)
13 / 34
42. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
2 θL under BIS work more, have (most likely) lower pension benefits and pay lower taxes
(efficiency ↑ social security benefits ↓ tax liability ↓)
3 ∃ η̃ s.t. for θL HHs redistribution lost in pension system is fully compensated by tax system
∆PV Pen
(θL) = ∆Tax(θL)
13 / 34
43. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
2 θL under BIS work more, have (most likely) lower pension benefits and pay lower taxes
(efficiency ↑ social security benefits ↓ tax liability ↓)
3 ∃ η̃ s.t. for θL HHs redistribution lost in pension system is fully compensated by tax system
∆PV Pen
(θL) = ∆Tax(θL)
13 / 34
44. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
2 θL under BIS work more, have (most likely) lower pension benefits and pay lower taxes
(efficiency ↑ social security benefits ↓ tax liability ↓)
3 ∃ η̃ s.t. for θL HHs redistribution lost in pension system is fully compensated by tax system
∆PV Pen
(θL) = ∆Tax(θL)
4 ∃ η ∈ (0, η̃) s.t. for η η reform with µ is a Pareto-improving (by continuity of the utility function)
13 / 34
45. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
2 θL under BIS work more, have (most likely) lower pension benefits and pay lower taxes
(efficiency ↑ social security benefits ↓ tax liability ↓)
3 ∃ η̃ s.t. for θL HHs redistribution lost in pension system is fully compensated by tax system
∆PV Pen
(θL) = ∆Tax(θL)
4 ∃ η ∈ (0, η̃) s.t. for η η reform with µ is a Pareto-improving (by continuity of the utility function)
13 / 34
46. Key results: Reform social security and extra government revenue → lump-sum grants µ
1 θH under BIS work more, have strictly higher pension benefits and pay higher taxes
(efficiency ↑ social security benefits ↑ tax liability ↑)
2 θL under BIS work more, have (most likely) lower pension benefits and pay lower taxes
(efficiency ↑ social security benefits ↓ tax liability ↓)
3 ∃ η̃ s.t. for θL HHs redistribution lost in pension system is fully compensated by tax system
∆PV Pen
(θL) = ∆Tax(θL)
4 ∃ η ∈ (0, η̃) s.t. for η η reform with µ is a Pareto-improving (by continuity of the utility function)
5 ∃ η ∈ (0, η) s.t. for η η reform with µ is a Hicks-improving (by the same token)
13 / 34
48. Quantitative model
Consumers
• uncertain lifetimes: live for 16 periods, with survival πj 1
• ex ante heterogeneous productivity + uninsurable productivity risk
• consume, work and save based on CRRA instantaneous utility function 1
1−σ
c1−σ
− ϕ
1+1/η
ℓ1+1/η
• pay taxes (progressive on labor, linear on consumption and capital gains)
• contribute to social security, face natural borrowing constraint
15 / 34
49. Quantitative model
Consumers
• uncertain lifetimes: live for 16 periods, with survival πj 1
• ex ante heterogeneous productivity + uninsurable productivity risk
• consume, work and save based on CRRA instantaneous utility function 1
1−σ
c1−σ
− ϕ
1+1/η
ℓ1+1/η
• pay taxes (progressive on labor, linear on consumption and capital gains)
• contribute to social security, face natural borrowing constraint
Firms and markets
• Cobb-Douglas production function, capital depreciates at rate d
• no annuity, financial markets with (risk free) interest rate
15 / 34
50. Quantitative model
Government
• Finances government spending Gt , constant between scenarios,
• Balances pension system: subsidyt
• Services debt: rt Dt ,
• Collects taxes on capital, consumption, labor, and covers lump-sum grant
(progressive labor tax given by Benabou form)
Gt + subsidyt + rt Dt + Mt = τk,t rt At + τc,t Ct + Taxℓ,t + ∆Dt
where ∆Dt = Dt − Dt−1
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51. Policy experiment: comparative statics
Status quo: current US social security
• benefits redistributive, with high replacement rate for low income individuals
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52. Policy experiment: comparative statics
Status quo: current US social security
• benefits redistributive, with high replacement rate for low income individuals
• distortion: no individual link between labor supply and pension benefits
aj+1,t+1 + (1 + τc,t )cj,t = (1 + (1 − τk )rt )aj,t + (1 − τ)yj,t − Tt ((1 − τ)yj,t ) + Γj,t + 0 · τwt ωj,t ℓj,t + 0
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53. Policy experiment: comparative statics
Status quo: current US social security
• benefits redistributive, with high replacement rate for low income individuals
• distortion: no individual link between labor supply and pension benefits
aj+1,t+1 + (1 + τc,t )cj,t = (1 + (1 − τk )rt )aj,t + (1 − τ)yj,t − Tt ((1 − τ)yj,t ) + Γj,t + 0 · τwt ωj,t ℓj,t + 0
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54. Policy experiment: comparative statics
Status quo: current US social security
• benefits redistributive, with high replacement rate for low income individuals
• distortion: no individual link between labor supply and pension benefits
aj+1,t+1 + (1 + τc,t )cj,t = (1 + (1 − τk )rt )aj,t + (1 − τ)yj,t − Tt ((1 − τ)yj,t ) + Γj,t + 0 · τwt ωj,t ℓj,t + 0
Alternative: fully individualized social security and lump-sum grants
• benefits proportional to contribution, no redistribution through social security
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55. Policy experiment: comparative statics
Status quo: current US social security
• benefits redistributive, with high replacement rate for low income individuals
• distortion: no individual link between labor supply and pension benefits
aj+1,t+1 + (1 + τc,t )cj,t = (1 + (1 − τk )rt )aj,t + (1 − τ)yj,t − Tt ((1 − τ)yj,t ) + Γj,t + 0 · τwt ωj,t ℓj,t + 0
Alternative: fully individualized social security and lump-sum grants
• benefits proportional to contribution, no redistribution through social security
• no distortion: direct individual link between labor supply and pension benefits
aj+1,t+1 + (1 + τc,t )cj,t = (1 + (1 − τk )rt )aj,t + (1 − τ)yj,t − Tt ((1 − τ)yj,t ) + Γj,t + υR
j,t · τwt ωj,t ℓj,t + µt ,
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56. Policy experiment: comparative statics
Status quo: current US social security
• benefits redistributive, with high replacement rate for low income individuals
• distortion: no individual link between labor supply and pension benefits
aj+1,t+1 + (1 + τc,t )cj,t = (1 + (1 − τk )rt )aj,t + (1 − τ)yj,t − Tt ((1 − τ)yj,t ) + Γj,t + 0 · τwt ωj,t ℓj,t + 0
Alternative: fully individualized social security and lump-sum grants
• benefits proportional to contribution, no redistribution through social security
• no distortion: direct individual link between labor supply and pension benefits
aj+1,t+1 + (1 + τc,t )cj,t = (1 + (1 − τk )rt )aj,t + (1 − τ)yj,t − Tt ((1 − τ)yj,t ) + Γj,t + υR
j,t · τwt ωj,t ℓj,t + µt ,
• additional tax revenue (from increased efficiency) goes into lump-sum grants
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57. Calibration to replicate US economy (2015)
Preferences: instantaneous utility function take CRRA form with
• Risk aversion σ is equal to 2
• Disutility form work ϕ matches average hours 33%
• Frisch elasticity η is equal to 0.8
• Discounting rate δ matches interest K/Y ratio 2.9
Productivity risk and age profiles shock based on Borella et. al (2018):
Pension system
• Replacement rate ρ matches benefits as % of GDP 5.0%
• Contribution rate balances pension system in the initial steady state
• Pension eligibility age at 65
Taxes {τc , τk , τℓ} match revenue as % of GDP {2.8%, 5.4%, 9.2%}
Depreciation rate d based on Kehoe Ruhl (2010) equal to 0.06
Population survival probabilities based on UN forecast
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62. Labor supply reaction for η = 0.8
Average ∆ℓ ↑ 2.6% for HHs below median and 3.0% above median
Heathcote et al. (2008) argue for ↑ for high-productivity and ↓ for low-productivity.
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64. Distribution of welfare effects for η = 0.8
Under the veil of ignorance consumption equivalent increases by 0.3%
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65. Distribution of welfare effects for η = 0.8
Under the veil of ignorance consumption equivalent increases by 0.3%
Ex post almost universal gains (90%).
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72. Conclusions
1. Progression in the tax system can effectively substitute for progression in social security ...
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73. Conclusions
1. Progression in the tax system can effectively substitute for progression in social security ...
2. ... generating welfare gains
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74. Conclusions
1. Progression in the tax system can effectively substitute for progression in social security ...
2. ... generating welfare gains
3. With rising longevity, the potential welfare gains are higher.
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75. Conclusions
1. Progression in the tax system can effectively substitute for progression in social security ...
2. ... generating welfare gains
3. With rising longevity, the potential welfare gains are higher.
4. Important role for response of labor to the features of the pension system
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