Christian Habermann

Risk Sharing and Efficiency Implications of Progressive Pension Arrangements

The present paper aims to quantify the welfare effects of progressive pension arrangements in Germany. Starting from a purely contribution-related benefit system, we introduce basic allowances for contributions and a flat benefit fraction. Since our overlapping-generations model takes into account variable labor supply, borrowing constraints as well as stochastic income risk, we can compare the labor supply, the liquidity, and the insurance effects of the policy reform. Our simulations indicate that for a realistic parameter combination an increase in pension progressivity would yield an aggregate efficiency gain of more than 2 percent of resources. However, such a reform would not be implemented because it would not find political support of the currently living generations.

Pension reform and demographic uncertainty: the case of Germany

The present paper compares the distributional and risk-sharing consequences of two pension reform options in Germany, which both aim to improve the sustainability of the current system by introducing demographic variables to the benefit calculation. While the first reform proposes a so-called ‘sustainability factor’, which measures the changes in the dependency ratio, the second reform proposes a so-called ‘demographic factor’, which takes into account the changes in life expectancy. Our simulations indicate that both reforms imply a double burden for currently middle-aged generations and a double relief for future living generations. On the one side, resources are redistributed from currently towards future living generations. In addition, part of the risk from demographic uncertainty is shifted from future living towards currently living middle-aged generations. The reforms differ, however, with respect to the magnitude of the resource distribution and risk implications. Therefore, future generations are much better off with the ‘sustainability factor’, while it is not clear whether middle-aged generations are better off with the ‘demographic factor’ or the ‘sustainability factor’.

Tax-Favored Retirement Accounts: Are they Efficient in Increasing Savings and Growth?

The present paper aims to quantify the macroeconomic and welfare effects of taxfavored retirement accounts. Starting from an equilibrium without saving incentives, we introduce such accounts and compute the new transition path and the resulting long-run equilibrium. Since our overlapping-generations model comprises a detailed progressive tax system, borrowing constraints as well as stochastic income risk, we can compare macroeconomic and liquidity effects, tax distortions and the insurance properties of the policy reform. Our simulations indicate that tax-favored retirement accounts as implemented in many OECD countries will have a significant impact on capital accumulation and wage growth in the long run, but only yield insignificant aggregate efficiency changes. While elderly generations are typically hurt by such a reform, young and future generations benefit. Finally, with respect to the intragenerational redistribution, a subsidy system that includes direct bonus payments might be preferred to a system with pure tax deductions.