Second-Best Properties of Implicit Social Security Taxes : Theory and Evidence

This paper investigates the inter-temporal structure of implicit taxes that arise in unfunded pension schemes. We demonstrate that these tax rates are declining over the life cycle. Using German micro-data for men and married women we estimate periodic wage elasticities of labour supply in order to check the second-best properties of this timing of tax rates. An efficient taxation would require to decrease the excessive implicit taxes for married women and to implement an inversely "J-shaped" tax profile for male workers. This result contradicts the standard proposal to smooth the profile of implicit tax rates across the individual life cycle