Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107375
Authors: 
Heer, Burkhard
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5192
Abstract: 
Ýmrohoroðlu, Ýmrohoroðlu and Joines [1995, A life-cycle analysis of Social Security, Economic Theory, vol. 6, 83-114] show that the optimal replacement ratio of the payas-you-go public pension system in the US economy amounts to 30%. We extend their analysis to a model that 1) replicates the empirical wage heterogeneity, 2) endogenizes the individual's labor supply decision and 3) accounts for contributions-defined pensions of the US social security system. With these more realistic modifications, the optimal replacement ratio is found to amount to approximately 5% and to be insensitive with regard to the aging of the US population; however, lower productivity growth would result in higher optimal pension payments. In addition, the optimal pension scheme is found to be more progressive than the present US pension system.
Subjects: 
optimal social security
progressive pensions
income and wealth distribution
demographic transition
JEL: 
C68
D31
D91
H55
J11
J26
Document Type: 
Working Paper

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