Tax–Benefit Linkages in Pension Systems: A Note

Abstract

This note shows that a public pension system with a fairly general individual tax–benefit linkage is (computationally) equivalent to a system without linkages. The “equivalent” pension system without linkages not only facilitates simulations of policy experiments but also offers some insight into the implied tax structure of the tax–benefit linkage. It is shown that implicit tax rates may differ considerably across age groups even if the statutory tax rate is constant over the life‐cycle.