Population Aging, Social Security and Fiscal Limits

By Burkhard Heer (University of Augsburg), Vito Polito (University of Bath) & Michael R. Wickens (University of Cardiff) We study the sustainability of pension systems using a life-cycle model with distortionary taxation that sets an upper limit to the real value of tax revenues. This limit implies an endogenous threshold dependency ratio, i.e. a point in the cross-section distribution of the population beyond which tax revenues can no longer sustain the planned level of transfers to retirees. We quantify the...