How should a government finance pension benefits?

Based on an earlier report by Ono (2010), this paper presents consideration of a consumption tax and examines how tax reform to maintain the neutrality of pension benefits affects the income growth rate and the employment rate. A decrease in the rate of worker contribution (labour income tax rate) w...

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Bibliographic Details
Published in:Australian economic papers 2021-03, Vol.60 (1), p.138-152
Main Author: Yasuoka, Masaya
Format: Article
Language:English
Subjects:
aging society
Ambiguity
Employment
endogenous growth
Finance
Growth rate
H21
H51
Income taxes
J14
Neutrality
pension
Robustness
Tax rates
Tax reform
tax system
Taxation
Unemployment
Use taxes
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Summary:Based on an earlier report by Ono (2010), this paper presents consideration of a consumption tax and examines how tax reform to maintain the neutrality of pension benefits affects the income growth rate and the employment rate. A decrease in the rate of worker contribution (labour income tax rate) with an increase in a consumption tax raises employment, but the effect on income growth is ambiguous. A decrease in the rate of firm contribution with an increase in the consumption tax decreases employment and facilitates income growth. Therefore, if the unemployment rate must be decreased, then pension reform with a decrease in the rate of worker contribution should be selected. The results derived through the study described in this paper are consistent with the empirical facts. Moreover, for these analyses, we assume the other production function and confirm the robustness of the obtained results.
ISSN:0004-900X
1467-8454
DOI:10.1111/1467-8454.12197