Schnabel, Reinhold:
Rates of Return of the German Pay-as-You-Go Pension System
1998
In: FinanzArchiv, Band 55 (1998), S. 374 - 399
Artikel/Aufsatz in Zeitschrift1998Wirtschaftswissenschaften
Titel:
Rates of Return of the German Pay-as-You-Go Pension System
Autor(in):
Schnabel, ReinholdLSF
Erscheinungsjahr
1998
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Abstract:

Due to population aging, contribution rates of the mandatory German pay-as-you-go pension system are expected to increase dramatically during the next decades. This paper estimates the impact on the expected returns of contributions for different cohorts. I show that rates of return for younger cohorts will be between zero and one percent, depending on the demographic and economic scenarios; for some demographic groups they become negative. The implicit tax rates reach levels of around two-thirds of contributions for the youngest cohorts. If decreasing returns reduce incentives for labor supply and system participation, the whole system may become unsustainable. Indeed, I find empirical evidence for a recent decline of voluntary contributions and for a substitution away from taxable employment.