How Much is Transfer and How Much is Insurance in a Pay‐as‐you‐go System? The German Case

Abstract

Pay‐as‐you‐go pension systems provide insurance against longevity‐related old‐age poverty and related risks. They are commonly also used as instruments for redistribution. This paper provides several estimates of the insurance and transfer share of the German public pension system. Estimating these shares is important because they are indicative of taxation‐related deadweight losses and influence public acceptance of the pension system. We also disentangle intragenerational from intergenerational transfers. Although our estimate of intragenerational transfers is smaller than recent semi‐official estimations, such transfers create substantial deadweight losses. Intergenerational transfers are much larger, thereby contributing to strong negative participation incentives for the younger generation. JEL classification: H55; J26

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