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Köthenbürger, Marko; Poutvaara, Panu (2006): Social security reform and investment in education: Is there scope for a Pareto improvement? In: Economica, Vol. 73, No. 290: pp. 299-319
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We propose a Pareto-improving policy which reduces the overall wage taxburden in an economy with intergenerational trade in a fixed factor ofproduction, here labelled as land. We analyse a second-best environmentin which the government cannot resort to non-distortionary land taxes.Reducing the social security contribution rate encourages investment inhuman capital. Future efficiency gains accruing to complementary landare capitalized in its value. The capital gains may compensateland-owning pensioners for reduced benefits. We also explain why theunfunded pension system may have lost its appeal even for pensionersafter its introduction.