Options for Social Security Reform
Analyzing what causes the lack of fiscal sustainability in Germany, we observed in Section 5.3.2 that intertemporal generational imbalance is mainly attributable to three sources — public liabilities of the base period reflecting past fiscal policy, regional economic disparity demanding sizeable government transfers to the East German states which are not completely funded by taxes at present, and most importantly, the fiscal consequences of demographic aging. Although the latter, as shown in the previous chapter, are perhaps to some extent mitigated by immigration, political decision makers cannot hope that demographic rejuvenation will be strong enough to put aging pressure from government budgets. Thus, there is a need for long-term oriented fiscal reform, in order to check intergenerational distribution conflicts resulting from unsustainable tax and transfer levels. In fact, like in many OECD countries, concern that progressive demographic aging could put overwhelming strain on future government budgets has fuelled the debate on fiscal policy reform in Germany. The options to protect public provision of retirement income against demographic aging attract particular attention.1
KeywordsContribution Rate Pension System Pension Benefit Pension Contribution Fiscal Sustainability
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