Age-Specific Entrepreneurship and PAYG Public Pensions in Germany

53 Pages Posted: 28 Jul 2020

See all articles by Burkhard Heer

Burkhard Heer

University of Augsburg; CESifo (Center for Economic Studies and Ifo Institute)

Mark M. Trede

University of Münster - Faculty of Economics

Date Written: 2020

Abstract

We present new empirical evidence on the distribution of earnings, income and wealth among entrepreneurs in Germany. We document that both earnings and income are more concentrated among entrepreneurs than among workers and describe a large-scale overlapping-generations model that can replicate these findings. As an application, we compute the equilibrium effects of a reform of the German pay-as-you-go pension system in which entrepreneurs must also contribute and receive a pension. We show that in the presence of mobility between workers and entrepreneurs, the expected lifetime utility of all newborn households unanimously declines due to the general equilibrium effects of lower aggregate savings, and welfare losses amount to approximately 5% of total consumption. In addition, the integration of self-employed workers into the social security system in Germany does not help to improve its fiscal sustainability, and only an increase in the retirement age to 70 years will help to finance pensions at the present level beyond the year 2050.

JEL Classification: H550, D310, D910, J110, L260, C680

Suggested Citation

Heer, Burkhard and Trede, Mark M., Age-Specific Entrepreneurship and PAYG Public Pensions in Germany (2020). CESifo Working Paper No. 8439, Available at SSRN: https://ssrn.com/abstract=3657975 or http://dx.doi.org/10.2139/ssrn.3657975

Burkhard Heer (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Mark M. Trede

University of Münster - Faculty of Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
263
PlumX Metrics