%T Labor Supply Distortion and Capital Accumulation when Public Pension Systems Differ in an Aging Economy
%B Proceedings of the 16th Annual Conference of Public Economic Theory
%C Luxembourg
%A Xue Wen
%A Fabio Pammolli
%A Giorgio Gnecco
%K Keywords: Labor Supply, Capital Accumulation, Pension, Aging Economy. JEL Codes: H55, H21, D91
%D 2015
%L eprints2949
%X In the context of an aging economy, the question addressed in this paper is: since pension systems differ in the funding methods - pay-as-you-go (PAYG) or fully funded - and payment schemes - Beveridgean or Bismarckian - under which setting can a sustainable public pension system provide both intergenerational and intragenerational redistribution, reduce labour supply distortion, and lead to a higher physical capital accumulation? Considering a series of partial reforms within a PAYG pension system to deal with aging, the results of our analysis show that commonly used policy actions distort labor supply and depress the capital market, thus, reducing the tax base and deteriorating the growth of the economy. As a consequence, the PAYG pension system does not appear to be reformable from inside, and a (partial) transition to a funded system is necessary.Moreover, we show that, within a fully funded scheme, a transition from a pure Beveridgean system to a pure Bismarckian system substantially improves the labor supply incentives, while it tends to depress physical capital accumulation. Hence, a mix between Beveridge and Bismarck substantiates a good compromise to balance the trade-off between equity and efficiency