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| Author: | Homburg, S. |
| Title: | Compulsory savings in the welfare state |
| Journal: | Journal of Public Economics
2000 : AUG, VOL. 77:2, p. 233-239 |
| Index terms: | Savings Retirement Welfare state Models |
| Language: | eng |
| Abstract: | Compulsory savings are justified on efficiency grounds because they alleviate the following free rider problem, according to a widely held belief. If the welfare state grants a minimum income to older persons, some of the young may find it optimal not to provide for retirement. The literature argues that compulsory savings can be used to overcome this problem. However, potential free riders consider compulsory savings as if they were payroll taxes. This holds even if the pension system is actuarially fair. If the resulting labour market distortions are important, it is optimal to accept the free rider problem rather than to introduce a compulsory pension system. |
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