Abstract
This paper uses an overlapping generations model of a small open economy to explore the efficiency effects and intergenerational redistribution effects of several policy options aimed at reducing the burden of pay-as-you-go (PAYG) contributions on labor income. Both the policy option of subjecting the retirement benefits to PAYG contributions and that of cutting PAYG benefits succeed in improving efficiency, but only the latter one proves to be Pareto-welfare improving. In addition, the paper performs a sensitivity analysis to test whether simulation results depend on the assumption used with respect to the survival profile of households. It appears that assumptions about survival rates do not affect overall efficiency conclusions, but they do make a difference for the distribution of the gain across generations.
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