We analyse how a reduced contribution rate affects the balanced pay-as-you-go pension budget in the basic overlapping generations model of neoclassical growth (Diamond, P., 1965. National debt in a neoclassical growth model. American Economic Review 55 (5), 1126–1150). It is shown that PAYG pensions can be increased by reducing the payroll tax paid by the young contributors.
Increasing PAYG pension benefits and reducing contribution rates
GORI, LUCA
2010-01-01
Abstract
We analyse how a reduced contribution rate affects the balanced pay-as-you-go pension budget in the basic overlapping generations model of neoclassical growth (Diamond, P., 1965. National debt in a neoclassical growth model. American Economic Review 55 (5), 1126–1150). It is shown that PAYG pensions can be increased by reducing the payroll tax paid by the young contributors.
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