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  • 1
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2016-02-08
    Description: The present paper quantifies the economic consequences of eliminating the system of income splitting in Germany. We apply a dynamic simulation model with overlapping generations where single and married agents have to decide on labor supply and homework facing income and lifespan risk. The numerical exercise computes the resulting welfare changes across households and isolates aggregate efficiency effects of a move towards either individual taxation or family splitting. Our results indicate strongly that a switch towards individual taxation performs best in terms of economic efficiency due to reduced labor market distortions and improved insurance provision. In our benchmark calibration the efficiency gain amounts to roughly 0.4 percent of aggregate resources. Excluding home production significantly reduces aggregate efficiency gains while including marital risk slightly improves the efficiency of individual taxation.
    Keywords: H21 ; H24 ; J12 ; J22 ; ddc:330 ; stochastic general equilibrium ; home production ; female labor supply ; tax unit choice ; insurance provision
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 2
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2016-02-23
    Description: The present paper quantifies the importance of family insurance for the analysis of social security. We therefore augment the standard overlapping generations model with idiosyncratic labor productivity and longevity risk in that we account for gender and marital status. We simulate the abolition of pay-as-you-go pension payments, calculate the resulting intergenerational welfare changes and isolates aggregate efficiency effects for singles and families by means of compensating transfers. In accordance with previous studies that take into account transitional dynamics, we find that abolishing social security creates significant efficiency losses. Most importantly, however, we show that singles are substantially worse off from a shut-down of old-age payments compared to married couples. A decomposition of the efficiency loss reveals that this difference can be almost exclusively attributed to the insurance role of the family with respect to longevity risk. Since a married individual inherits her spouse’s wealth after his death and the likelihood that both partners reach a very old age is relatively small, marriage serves as an insurance device against longevity risk for the surviving partner.
    Keywords: J12 ; J22 ; ddc:330 ; stochastic general equilibrium ; home production ; family insurance
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 3
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2016-05-23
    Description: The present paper studies the growth and efficiency consequences of pension funding with individual retirement accounts in a general equilibrium overlapping generations model with idiosyncratic lifespan and labor income uncertainty. We distinguish between economies with rational and hyperbolic consumers and compare the consequences of voluntary and mandatory retirement plans. Three major findings are derived in our study: First, we quantify the commitment effect of social security for myopic individuals by roughly 1 percent of aggregate resources. It is possible to recapture this commitment technology in IRAs, if those are annuitized. Second, despite the fact that our consumers have an operative bequest motive, the welfare gain from the (implicit) longevity insurance of the pension system is significant and amounts to roughly 0.5 percent of aggregate resources. However, mandatory annuitization reduces unintended bequests so that future generations are significantly hurt. Finally, our results highlight the importance of liquidity effects for social security analysis. These efficiency gains are only attainable if accounts are voluntary and not mandatory.
    Keywords: H55 ; J26 ; ddc:330 ; individual retirement accounts ; annuities ; stochastic general equilibrium ; hyperbolic consumers ; Alterssicherung ; Rentenfinanzierung ; Private Rentenversicherung ; Konsumentenverhalten ; Zeitpräferenz ; Versicherungspflicht ; Wohlfahrtseffekt ; Allgemeines Gleichgewicht ; Overlapping Generations ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 4
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2018-01-31
    Description: The present paper aims to quantify the growth and welfare consequences of changing family structures in western societies. For this reason we develop a dynamic general equilibrium model with both genders which takes into account changes of the marital status as a stochastic process. Individuals respond to these shocks by adjusting savings and labor supply. Our quantitative results indicate that the declining number of marriages coupled with increasing divorce rates had a profound effect on macroeconomic variables and long-run welfare. We find a significant increase in aggregate capital accumulation and a rising labor market participation of women. In addition, our simulations indicate that the change in the marital structure had significant negative welfare consequences for women who lost between 0.4 and 2.2 percent of aggregate resources. The impact on men's welfare, however, could be positive or negative depending on the specific calibration.
    Keywords: J12 ; J22 ; ddc:330 ; family formation ; stochastic general equilibrium ; life cycle model
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 5
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    Nürnberg: Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
    Publication Date: 2019-02-26
    Description: The present paper studies the role of social security in an economy populated by overlapping generations of individuals that have time-consistent or time-inconsistent preferences, face mortality and individual income risk, borrowing constraints as well as progressive income taxes. Our simulations start from an artificial equilibrium where social security is completely neutral. Next we introduce successively alternative deviations from neutrality in order to isolate the various economic effects of social security. The latter are mainly the insurance provision against mortality and income risk, the negative liquidity effects for young households and the provision of a commitment technology for present-biased hyperbolic consumers. Our simulations indicate that the positive effects of social security dominate the negative ones for a wide range of parameter combinations. For our central parametrization social security induces an overall welfare gain which amounts to roughly 1.5 percent of aggregate resources in the hyperbolic model and a welfare loss of about 0.5 percent of resources in the model with rational consumers.
    Keywords: H55 ; J26 ; ddc:330 ; social security ; stochastic general equilibrium ; hyperbolic consumers
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 6
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2015-05-22
    Description: The present paper quantifies the economic consequences of eliminating the system of income splitting in Germany. We apply a dynamic simulation model with overlapping generations where single and married agents have to decide on labor supply and homework facing income and lifespan risk. The numerical exercise computes the resulting welfare changes across households and isolates aggregate efficiency effects of a move towards either individual taxation or family splitting.Our results indicate strongly that a switch towards individual taxation performs best in terms of economic efficiency due to reduced labor market distortions and improved insurance provision. In our benchmark calibration the efficiency gain amounts to roughly 0.4 percent of aggregate resources. Excluding home production significantly reduces aggregate efficiency gains while including marital risk slightly improves the efficiency of individual taxation.
    Keywords: H21 ; H24 ; J12 ; J22 ; ddc:330 ; stochastic general equilibrium ; home production ; female labor supply ; tax unit choice ; insurance provision
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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