On the redistributive power of pensions

We study the tradeoff between efficiency and redistribution in a model with overlapping generations, extensive labor supply, and perfect financial markets. The government instruments are a pension scheme and a age-independent nonlinear income tax schedule. At the second-best optimum, the pension system constrains the agents’ labor supply behavior, forcing them to work to achieve a required lifetime performance. Income taxes affect labor supply directly, but also indirectly through pension incentives. The indirect effect of taxes counteracts the usual forces in the efficiency-redistribution tradeoff: through the interplay with the pension system, decreasing taxes induces redistribution and reduces productive efficiency

Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits

The systems of direct taxes and cash benefits in the Member States of the European Union vary considerably in size and structure. We explore their direct impacts on cross-sectional income inequality (termed "redistributive effect" for the purpose of this paper) using EUROMOD, a tax-benefit microsimulation model for the European Union. This relies on harmonised household micro-data representative of each national population together with simulations of entitlements to cash benefits and liabilities for taxes and social contributions. It allows us to draw a more comprehensive – and comparable – picture of the combined effects of transfers and taxes than is usually possible. We decompose the redistributive effect of taxbenefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. We derive results for the 15 "old" members of the European Union and present them for each country separately as well as for the EU-15 as a whole.Income inequality, Redistribution, Microsimulation, European Union

Globalization and the Role of Public Transfers in Redistributing Income in Latin America and the Caribbean

This paper focuses on measuring the extent to which publicly subsidized transfers in Latin America and the Caribbean redistribute income. The redi$social protection, insurance, redistribution, targeting, poverty, inequality, welfare

Income Redistribution in Croatia: The Role of Individual Taxes and Social Transfers

The paper discusses the methodology and preliminary results of an investigation of the redistributive effects of social security contributions (SSC), personal income tax (PIT), public pensions as well as means-tested and non-means-tested cash benefits in Croatia. The transition from a pre- to a post-tax-and-benefit income is analyzed in order to reveal which instruments contribute most to the reduction of inequality. The Croatian system of individual taxes, pensions and social benefits seems to be highly redistributive, with public pensions being the instrument that contributes most, followed by SSC and PIT.income inequality, redistribution, fiscal instruments

Portability of Pension, Health, and Other Social Benefits: Facts, Concepts, Issues

Portability of social benefits across professions and countries is an increasing concern for individuals and policy makers. Lacking or incomplete transfers of acquired social rights are feared to negatively impact individual labor market decisions as well as capacity to address social risks with consequences for economic and social outcomes. The paper gives a fresh and provocative look on the international perspective of the topic that has so far been dominated by social policy lawyers working within the framework of bilateral agreements; the input by economists has been very limited. It offers an analytical framework for portability analysis that suggests separating the risk pooling, (implicit or actual) pre-funding and redistributive elements in the benefit design and explores the proposed alternative approach for pensions and health care benefits. This promising approach may serve both as a substitute and complement to bi- and multilateral agreements.portability, acquired rights, migration, bilateral agreements, risk pooling

Portability of pension, health, and other social benefits : facts, concepts, issues

Portability of social benefits across professions and countries is an increasing concern for individuals and policy makers. Lacking or incomplete transfers of acquired social rights are feared to negatively impact individual labor market decisions as well as capacity to address social risks with consequences for economic and social outcomes. The paper gives a fresh and provocative look on the international perspective of the topic that has so far been dominated by social policy lawyers working within the framework of bilateral agreements; the input by economists has been very limited. It offers an analytical framework for portability analysis that suggests separating the risk pooling, (implicit or actual) pre-funding and redistributive elements in the benefit designand explores the proposed alternative approach for pensions and health care benefits. This promising approach may serve both as a substitute and complement to bi- and multilateral agreements.Gender and Law,Health Monitoring&Evaluation,Population Policies,Pensions&Retirement Systems,Debt Markets

The Redistributive Effects of Tax Benefit Systems in the Enlarged EU

How do different components of the tax and transfer systems affect disposable income inequality? This paper explores the redistributive effects of different tax benefit instruments in the enlarged EU based on two approaches. Inequality analysis based on the standard approach suggests that benefits are the most important factor reducing inequality in the majority of countries. The factor source decomposition approach, however, suggests that benefits play a negligible role and sometimes even contribute slightly positive to inequality. On the contrary, here taxes and social contributions are by far the most important contributors to income inequality reduction. We explain these partly contradictory results with the different normative focus of the two approaches and show that benefits have other aims than redistribution. Finally, our country clustering shows that the Eastern European countries do not form a distinguished group. The Central Eastern European countries group together with the Continental European countries and the Baltic States show similarities with some Southern European countries.inequality, redistribution, decomposition, tax benefit systems

Patterns of popular support for the welfare state: a comparison of the United Kingdom and Germany

This paper deals with the problems of social acceptance and social support of the welfare state. It starts with a brief presentation of approaches which infer in an immediate way from the self-interest of the citizens as welfare beneficiaries (‘beneficial involvement’) to the question of social acceptance. Although the importance of this factor is undisputed, the conceptual reliance on a purely interest-defined understanding remains insufficient since it does not explain why the welfare state institutions also find social acceptance amongst groups which are not net-beneficiaries. The issue of how social support is constituted will be reframed in three respects. Firstly, the supportive attitudes towards the welfare state are not solely motivated by the benefit status, they are also related to the expectation of returns. Thereby the welfare institutions are perceived as guarantors of intertemporal risk balancing. This expectation of future benefits makes people willing to accept an enormous redistribution from welfare contributors to receivers. Secondly, it will be argued that the normative dimension, i.e. what people find equitable, just and fair, can be viewed as a complementary dimension of self-interest without which the phenomena of social acceptance or disregard cannot be grasped. Thirdly, the institutional architecture of welfare programmes will be introduced as the crucial determinant of the codetermination of self-interest and the normativity. By comparing the United Kingdom and Germany (East and West), the relation between institutional designs and individual orientations will be investigated more in detail. At first, the institutional architecture of both welfare states will be presented with special emphasis on the mode of interest integration in terms of ‘beneficial involvement’ and the conditions of ‘return expectations’, on the one hand, and the ‘normative references’, on the other. In a subsequent analysis of the attitudinal patterns within the different welfare regimes, this perspective will be sharpened further. Databasis will be the ISSP 1996 (International Social Survey Programme) with its module ‘Role of Government’. Within different fields of social policy (pension, unemployment, income redistribution) it will be looked at the groupspecific effects of the institutional architecture and the extent of attitudinal differentiation. From this, some conclusions will be drawn of how welfare institutions condition and generate social acknowledgement and support. --

Economic theory and the welfare state : a survey and interpretation.

'I propose here the view that, when the market fails to achieve an optimal state, society will, to some extent at least, recognize the gap, and nonmarket social institutions will arise attempting to bridge it....' (Kenneth Arrow 1963, p. 947). 'Economic theorists traditionally banish discussions of information to footnotes. Serious consideration of costs of communication, imperfect knowledge ... would, it is believed, complicate without informing.... [T]his comforting myth is false. Some of the most important conclusions of economic theory are not robust to considerations of imperfect information' (Michael Rothschild and Joseph Stiglitz 1976, p. 629). 'That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity' (George Bernard Shaw, The Doctor's Dilemma, 1911).