Germany: a social security system of the verge of collaps

Börsch-Supan, Axel

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URN: urn:nbn:de:bsz:180-madoc-28953
Document Type: Working paper
Year of publication: 1997
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Subject headings (SWD): Deutschland , Sozialversicherung , Rentenversicherung , Krise
Abstract: Germany has one of the most generous retirement systems in the world. At the very same time, Germany also faces one of the most incisive population aging processes. The ratio of workers to pensioners will decrease to about one to one within the next generation. This will put the German pay-as-you-go social security system under sever pressure. This paper has three aims. First, it shows that the design of the current system has incentive effects which make coping with the future demographic challenges particularly difficult. Second, it shows that the German pay-as-you-go mechanism cannot be fixed by any single policy measure alone. Moreover, while a combination of several feasible measures may be able to stabilize the contribution rate, the internal rate of return of the pay-as-you-go system will fall to a level that is likely to create strong incentives to opt out wherever possible. Third, the paper shows that a transition to a funded system is feasible without creating a double burden on the transition generation.
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