Regressive intracohort redistribution in nonfinancial defined contribution pension

Nonfinancial defined contribution (NDC) pension systems have recently become popular because they provide the strong incentives of the private funded systems without requiring a difficult transition period. Using the framework of mechanism design, these systems have theoretically been criticized because they neglect the regressive intracohort redistribution: longer lived workers retire later and are rewarded as if their life expectancies were average. Now we document this by Hungarian data, and giving up the framework of mechanism design, we corroborate our earlier qualitative findings withthe more realistic benefit adjustment function and wage heterogeneity

Savings, child support, pensions and endogenous (and heterogeneous) fertility

van Groezen, Leers and Meijdam (2003) (for short, GLM) analyzed combination of public pension and child support in an OLG model. We impose credit constraint on workers, and extend GLM's analysis from the case where workers do not understand the cost also to the case where they do. GLM's infinite stream of generations is simplified into three generations but heterogeneity of rearing costs and of enjoying children is introduced. Two major results: (i) excluding negative savings, fertility decreases with pension contributions and increases with taxes; (ii) the introduction of fertility-dependent pensions may strengthen heterogeneity in fertility

Does higher tax morale imply higher optimal labor income tax rate?

We analyze the impact of tax morale on optimal progressive labor income taxation. Only universal basic income is financed from a linear tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale. Limiting the utilitarianism to the poorer parts of the population (defined by the inclusion share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the inclusion share, provided that the average wage of those included is higher than 0.54 times the average wage

Socially optimal cap on pension contributions

In our model, the government operates a mandatory proportional pension system to substitute for the low life-cycle savings of the lower-paid myopes, while maintaining the incentives of the higher-paid, far-sighted in contributing to the system. The introduction of an appropriate cap on pension contribution (or its base) raises the optimal contribution rate, helping more the myopes and making more room for the saving of high-paid far-sighted workers. The cap has quite a weak impact on the social welfare in a relatively wide interval but the maximal welfare is higher than the capless welfare by 0.3-4.5%

A family of simple paternalistic transfer models

A general framework is analyzed which contains several special transfer (tax and pension) models. In our static two-overlapping-generation framework, every individual works in the first stage of the adult age, while is retired in the second. The government operates a balanced linear transfer system, sometimes with caps. In the models, the individuals may optimize their situation in various ways: contributing to voluntary pension, restraining labor supply and underreporting wages. Individuals are typically short-sighted, therefore they choose paternalistically suboptimal decisions. The models provide useful information on the socially optimal paternalistic transfer system

Hungarian Pension System: The Permanet Reform

On January 1, 1998 a three-pillar pension system was introduced in Hungary. It is replacing about 1/4 of the existing unfunded public system by a funded private system. The transition to this mixed system was obligatory for those entering the labor market after June 30, 1998 and optional for the current labor force. Meanwhile the public pillar is also being reformed. The current (1998-2002) government has made important changes to the on-going reform program started by its predecessor: The benefits under the mixed system will be less attractive than envisaged, the participation in the mixed system is not mandatory for the entrants to the labor force since the beginning of 2002 and the public pillar is to be based on the virtual individual accounts (NDC). There is a danger that the permanent changes will further weaken the trust in the mandatory (public and private) pension system.

Social Security Reform in the US: Lessons from Hungary

The partial privatization of the US Social Security system was clearly the top economic policy priority for the new Bush administration. While many famous economists, publicists and politicians support, others reject the partial privatization of the Social Security system. The international comparisons have been quite infrequent, concentrated on few countries (Chile, Great Britain and Sweden) and left out similar reforms introduced in similar situations, like in Hungary, Poland and other ex-communist countries. In this article I try to make up for this omission and outline the lessons from the Hungarian reform, started in 1998. The conclusion is simple: such a reform is possible but does not solve the problems of social security.Social Security, Pensions, Prefunding of pensions, United States, Hungary

Tax Morality and Progressive Wage Tax

We analyze the impact of tax morality on progressive income (wage) taxation. We assume that transfers (cash-back) and public expenditures are financed from linear wage taxes. We derive the reported wages from individual utility maximization, when individuals obtain partial satisfaction from reporting wages (depending on their tax morality), and cannot be excluded from the use of public services. The government maximizes a utilitarian social welfare function, also taking into account the utility of public services. The major conjecture is illustrated by numerical examples: the optimal degree of redistribution and the size of the public services are increasing functions of the individuals' tax morality

Nyitott kérdések a nyugdíjgazdaságtanban = Open Questions in Pension Economics

'A nyitott kérdések a nyugdíjgazdaságtanban'' c. kutatásban két részterületen értem el új eredményeket. A) ''A rugalmas nyugdíjrendszer'' c. kutatásban folytattam korábbi , részben Eső Péterrel közös kutatásaim. (Rugalmas nyugdíjról beszélünk, ha a dolgozó szabadon választhatja meg nyugdíjazási idejét, és ettől függően kap havi nyugdíjat. ) Több modellben is igazoltam, hogy abban a realisztikus, de sokak által elhanyagot esetben, amikor a dolgozók várható élettartama típusonként különböző, és csak a dolgozók ismerik vagy veszik figyelembe ezt az jellemzőt, a hagyományos biztosítzásmatematikai szabályt módosítani kell: pl. a 2004-ben bevezetett évi 6+2%-os bónusz helyett célszerű visszatérni a korábbi 3,6+1,5%-hoz. Az ösztönzés tompítása csökeknti az újraelsoztást, de nem szünteti meg. Az újraelosztás kiküszöbölése azonban túl nagy áldozatot követlene a társxdalomtól, és gyakran még a nettó befizetők is jobban járnak ebben a rendszerben, mint ha ragaszkodnának a szigorú egyenleghez. B) A modern népességek elöregedése miatt veszélybe került a jóléti rendszerek, különösen a nyugdíj- és az egészségügyi ellátás fenntarthatósága. A legtöbb szavazási modellel szembefordulva egy befolyásos cikk azt állította, hogy ellenkezőleg, a dolgozók annyira visszafogják szorítani a jóléti rendszert, hogy egyenes könnyebbé válik a teher. A nemzetközi irodalomban szinte egyedül lelepleztem, hogy a szóban forgó cikk mind elméletileg, mind statisztikailag téves. | I have studied two problems in my ''Open issues in pension economics''. A) In ''The flexible retirement'' (partly jointlly with Péter Eső) I have continued my earlier investiogations. (I mean under flexible retorement a pension system where the worker can choose his retirement date, and depending on it, he receives a variable monthly benefit.) I have demonstrated that in the realistic but neglected case, when workers' lefe expectancies differ and only they know or can take into account, the traditional actuarial rule should be modified. For example, instead of the Hungarian regulation, introduced in 2004, which provided an additional 6+2% for any extra year in employment above the legal retirement age, the government should return to the old regulation, providing only 3.6+1.5%. The dampening of incentives reduces but does not eliminate the redistribution. The total elimination of redistribution would be socially suboptimal and quite frequently even the net contributors are better-off than in a system with strict balances. B) "Voting models in pension economics." The aging in modern populations may undermine the sustainability of welfare system, especially pension and health care systems. Contradicting to the bulk of the literature, a very influential paper called into question this common sense observation. Almost alone in the international literature I showed that the foregoing paper is based on erroneous theory and statistics

Mit tanultam Kornai Jánostól?

A Köz-Gazdaság szerkesztősége felkért, hogy írjak egy cikket a folyóiratnak: mit tanultam Kornai Jánostól? 1969 óta dolgozom Jánossal együtt. Hosszú élete során már többször írtam visszaemlékezést róla, például a 75. születésnapja alkalmából [Simonovits, 2003], de most megpróbálom nulláról indulva újra leírni gondolataimat. A felkérésnek megfelelően három részre osztom írásom: 1. kutatás, 2. oktatás, 3. közéleti tevékenység. Végül levonok néhány következtetést