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Mixing Bismarck and child pension systems: an optimum taxation approach

Robert Fenge and Jakob von Weizsäcker
Journal of Population Economics
Vol. 23, No. 2 (April 2010), pp. 805-823
Published by: Springer
Stable URL: http://www.jstor.org/stable/20685340
Page Count: 19
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Mixing Bismarck and child pension systems: an optimum taxation approach
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Abstract

Pensions with a strong tax–benefit link (Bismarck pensions) minimise the labour–leisure distortion of the public pension system. By contrast, pensions with a strong link of benefits to the number of children (child pensions) minimise the fertility distortion. When both types of distortion are present, we obtain a Corlett–Hague result regarding the optimal mix of the two pension formulae: the Bismack pension should be given a positive weight if and only if children are more complementary to leisure than consumption. Alternative fertility instruments such as child benefits turn out to be perfect substitutes to a child pension.

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