Macroeconomic consequences of raising social security contributions in Germany

Arbeitspapier

Population aging imposes a challenge for the public pension systems in many developed countries. The solvency of the pension system requires a broad set of policy measures. The paper addresses the following question: What are the macroeconomic consequences of increasing the social security contribution rate in Germany? The question is answered theoretically by setting up a two-period partial equilibrium overlapping generations (OLG) model and analyzing the impact of a marginal increase in the contribution rate on the worker's optimal labor supply. The key finding is that the labor supply response crucially depends on the model assumptions regarding: 1) the relative magnitudes of the population growth rate and the real rate of return on private saving, 2) the individual's utility function; and 3) the labor income tax and the pension benefit function. In case of a linear labor income tax and earnings-dependent pensions, which approximate the current German pension system, the theory predicts a rise in employment in response to a payroll tax increase for a conventional specification of the utility function and a plausible parameterization of the model parameters.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMK Working Paper ; No. 214

Classification and Topics

• Classification: Wirtschaft
• Subject: Population aging ; Public pension program ; Pension reform ; Labor taxation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Brendler, Pavel
• Event: Veröffentlichung
• (who): Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK)
• (where): Düsseldorf
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/270330
• Last update: 10.03.2025, 11:41 AM CET