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1

UNDERREPORTED EARNINGS AND REDISTRIBUTION IN THE OVERLAPPING-GENERATIONS MODEL (Keresetbevallas es ujraelosztas az egyuttelo nemzedekek modelljeben)

100%
Simonovits A.
Kozgazdasagi Szemle (Economic Review)
|
2009
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vol. 56
|
issue 2
101-118
EN
This paper analyses the interconnections between underreported earnings and redistribution. Two generations overlap: the young and the old. The young earn, contribute to the pension system, pay taxes, and if they can, save. The old receive pensions and dissave. Public expenditures are financed from wage taxes. We derive the reported earnings and savings from individual utility maximization, assuming over-discounting of the future, partial satisfaction from reporting earnings, and possible free riding in the use of public services. The government maximizes a social welfare function formed from paternalistic objective utility functions, yielding the parameter values of the socially optimal tax and pension system. For a utilitarian social welfare function and logarithmic utility functions, the optimal proportional (contributional) pension system provides higher welfare than any system containing a flat (basic) component in a dark grey economy, and lower welfare in a light grey economy. But the superiority of the proportional system can probably be re-established if an appropriate means-tested pension is added.
2

Designing optimal pension rules: new results

100%
Simonovits A., Toth J.
Kozgazdasagi Szemle (Economic Review)
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2007
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vol. 54
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issue 7/8
628-643
EN
This paper follows earlier ones by the same authors in applying mechanism design to finding an optimal non-linear pension-benefit rule for flexible retirement. It is assumed that individuals have private information about their expected life spans. The government's goal is to design a pension system (a payroll tax and a function that relates benefits to length of employment) that maximizes a social-welfare function and satisfies a social budget constraint (without satisfying the individual ones) redistribution. Since individuals with different life expectancies optimize their employment lengths conditionally on the benefit function, the government must also take into account incentive constraints. The authors' former studies reduced the inflexibility of the optimum and the excess in redistribution by rendering the social-welfare function concave. The new findings in this paper are: (1) some redistribution is inevitable in any reasonable pension system, and (2) second-best solutions may be local indeterminate, while (3) returning to utilitarianism, the minimization of redistribution is considered.
3

Reporting earnings and pension benefits: an elementary model

100%
Simonovits A.
Kozgazdasagi Szemle (Economic Review)
|
2008
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vol. 55
|
issue 5
427-440
EN
This paper analyses the interaction between reporting earnings and pension benefits, using a very simple, elementary model. Workers can be classified in three groups: 1. well-paid, reporting in full, 2. well-paid, reporting to a minimal extent (free-riders) and 3. poorly paid, reporting in full. In the basic version, it is assumed that free-riders save a significant proportion of their hidden earnings for their old age. Three pension systems are compared: 1. contributory, 2. contributory combined with a universal basic pension, and 3. contributory with means testing. The major result of the paper is that if free-riders are distinguishable and can be excluded, a means-tested system is welfare-superior to the basic system. The robustness of the observations can be checked by changing the assumptions of the basic model methodically. In a future model, the report and the saving are to be derived from individual optimization, and the system parameters will be set by maximizing the social-welfare function.
4

ON PENSION REFORM (A nyugdijreformrol)

100%
Nemeth G.
Kozgazdasagi Szemle (Economic Review)
|
2009
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vol. 56
|
issue 3239-269
EN
The author argues that although Hungary's pension is inherited, that is no barrier to envisaging the undoubtedly needful reform as a transition to an ideal goal of a 'best-present-knowledge' goal model for a pension system, i.e. constructing the goal model and devising the route to it must be seen together. The study charts the development of state or 'levy/ distribute' pension systems and describes the single great welfare programme of 20th-century history, which attained its political and social-policy aims. The period of reforms came in the 1980s, which the author calls the end of temporariness and the creation of permanence. Finding the solution was made harder because economics failed to describe the situation and reform thinking was dominated by the dichotomy of capital funded and levy/distribute. This was a blind alley; it became clear only later that the real distinction was between contributions and annuities. That led to the mistaken reform of the Hungarian pension system in 1997, which unwittingly became an obstacle to joining the Euro zone. Finally, the author proposes a new method of budgetary recording of the pension system and the creation of a new pension reform.
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