Robert Fenge

On the Optimal Timing of Implicit Social Security Taxes Over the Life Cycle

Are there still opportunities for welfare-improving reforms in unfunded pension systems? To answer this question, we analyze the intertemporal structure of implicit taxes in pay-as-you-go pension schemes. We demonstrate that these tax rates are declining over the life cycle. This timing is optimal if periodic wage elasticities of labor supply are inversely related to the tax structure. Using German micro data for men and married women, we estimate periodic wage elasticities of labor supply. We observe that an efficient taxation would require implementing a steeper tax profile for male workers and a U-shaped (or mildly N-shaped) tax profile for female workers in addition to a general reduction of the level of implicit tax rates for the latter.

Why Cities Should not be Subsidized

The paper deals with the question of whether fiscal transfers re-ceived by cities can be justified by a higher cost of producing publicly provided goods. In the model, increasing the population density implies both a higher output per capita due to agglomeration economies and a higher cost of the publicly provided good due to congestion. It is shown that introducing fiscal transfers to be paid by the region with the lower population density will generally reduce welfare. This result is obtained since the city is already beyond the level of optimum agglomeration.

EU Financing and Regional Policy: Vertical Fiscal Externalities when Capital is Mobile

This paper considers the EU regional policy and analyzes two kinds of externalities that can explain why matching grants are used to subsidize regional infrastructure: horizontal pecuniary externalities via capital markets, and positive vertical fiscal externalities created by the financing of the EU budget. Matching grants should correct for both externalities. As an extension the paper considers possible alternatives of the EU financing system and malevolent governments. While a tax on the GDP of the member states would increase the vertical fiscal externality, governments that misuse funds decrease it. However, calculations of the size of externalities show that matching grant rates needed for internalization are quite low.

Public pension systems and distortions of intra-EU mobility: the Lodge Test

In this paper, we analyse how national public pension systems can distort intra-EU movements of workers despite the existing totalization/proratization agreement. As a benchmark test, we propose the ‘Lodge Test’ of mobility neutrality: Two identical individuals who swap countries and jobs should receive the same pension claims in either of the two pension systems compared to a situation where each would have stayed at home. Using the Lodge Test, we identify those features of national pension formulae that are systematically mobility distorting and discuss possible remedies.

Compulsory Savings: Efficiency and Redistribution. On the Interaction of Means Tested Basic Income and Public Pensions

In the presence of means tested basic income for old age, households will tend to reduce precautionary savings to an inefficiently low level. We explore how this might serve as a justification for a compulsory public pension system. In a representative agent framework with two income types, compulsory savings are found to be Pareto-improving up to a point. Beyond that point, increases in contribution rates simply result in increasingly regressive (implicit) taxation. Similar results are found for pay-as-you-go pensions. On the basis of our model we argue that the introduction of a funded pension component may help the German pension system to cope with demographic change more efficiently.

How Much Fiscal Equalization? A Constitutional Approach

We treat fiscal equalization between two states as an insurance device against regional tax revenue variations. This insurance comes at the price of a moral hazard: regional governments will spend too little effort fostering and exploiting their local tax base. We show that total fiscal equalization is desirable as a constitutional provision if states are allowed to negotiate less than total fiscal equalization later on with the constitution serving as the fallback position.

Der Mortalitätseffekt auf das deutsche Rentensystem und eine automatische Anpassung des Renteneintrittsalters

Der demografische Wandel wird ab 2020 einen erheblichen Einfluss auf die Finanzierbarkeit der gesetzlichen Rentenversicherung in Deutschland haben. Die Alterung der Bevolkerung wird sowohl zu einer Erhohung des Beitragssatzes zum Rentensystem als auch zu einer deutlichen Senkung des Rentenniveaus fuhren. Wir zeigen in diesem Beitrag, dass insbesondere die stetige Verringerung der Mortalitat langfristig eine dominante Rolle bei dieser Entwicklung spielen wird. Um diesen Effekt steigender Lebenserwartung auf das Rentensystem zu neutralisieren, sollte eine gleichmasigere Aufteilung der gewonnenen Lebenszeit auf die Arbeits- und die Ruhestandsphase erreicht werden. In diesem Beitrag wird gezeigt, wie das Renteneintrittsalter regelgebunden erhoht werden sollte, damit der Beitragssatz trotz des Mortalitatseffektes stabilisiert werden kann.

Regional Policy as a Means to Curb Immigration

Regional policy accounts for approximately 35% of the EU budget (European Commission 2005). This share is even likely to increase further in the next few years, following the accession of twelve Member States in 2004 and 2007. The regional policy budget of the EU is mainly spent on subsidies for infrastructure investment in poor regions. The so-called structural funds subsidize infrastructure spending in regions with a GDP per capita of less than 75% of the EU average. The cohesion fund supports environmental and traffic infrastructure in poorer Member States, where the GDP per capita threshold lies at a level of 90% of the EU average.