Activity: Talk or presentation types › Oral presentation › Scientific
Description
In funded defined benefit pension schemes, contribution and accrual rates are typically age-independent. This implies that pension contributions are front-loaded. As contributions and accruals usually relate to earned labour income, this front-loading may affect labour market efficiency. For it implies that the labour supply of younger workers is implicitly taxed and that of older workers implicitly subsidized. This paper shows that front-loading of pension contributions may be welfare-reducing. It also shows that the welfare loss is weakened if one accounts for government spending that is financed with a labour income tax. In this case, front-loading may even be welfare-increasing. In particular, the more elastic is the labour supply of older workers relative to that of younger workers, the more likely it is that front-loading produces a welfare gain.