PAYG pension in a small open economy
- PAYG pension in a small open economy
- Yoo, Ilho
- Pay-As-You-Go pension; Redistribution; Small open economy
- Issue Date
- Series/Report no.
- KDI Working Paper Series;06-08
- In a recent paper (2006), Pestieu et.al. showed that the optimal payroll tax rate
for the PAYG pension in an open large economy should increase as number of
countries increases. This rather counterintuitive result ？increasing the factor
mobility makes redistribution easier？depends on a crucial assumption of the
only one tax ; payroll tax. In this paper, analysis of the optimal PAYG pension
in the small open economy setting is attempted. Under this new situation, it is
shown here that the standard result of trade-off between equity and increase in
the capital mobility could be restored. In deriving such result the assumption
of variable labor supply plays an important part.
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