Alexey V. Zamnius, Angelina E. Shpilevaya Optimal Taxation and Pension Systems in Overlapping Generations Models

DOI: 10.38050/2078-3809-2025-17-38-52

Abstract

In this article, we systematize the papers devoted to the development of general equilibrium models in the context of optimal taxation and pension systems. In the first part of the article, we will discuss the key principles of optimal taxation and the results obtained on the basis of general equilibrium models. We then look at the design of different pension systems, the problems associated with the transition between systems, and the role of the pension system in the context of absent or imperfect financial markets. As part of the review, it was shown that, firstly, the size of the elasticity of labor supply can significantly affect not only the size of the optimal income tax, but also the type of taxation scale itself. Second, the key driver of a positive tax on capital is the increasing elasticity of labor supply with age. Third, if risk-averse individuals exist under conditions of uncertainty, which can take the form of systematic and idiosyncratic risks, the welfare system can provide benefits to individuals by partly replacing the missing insurance markets. Finally, if the economy is dynamically inefficient, a pay-as-you-go pension system can deal with the problem of overaccumulation.

Keywords: optimal taxation, pension system, overlapping generations model, idiosyncratic risks.

JEL: H55, H21, C68.

For citation: Zamnius, A. V., Shpilevaya, A.E. (2025) Optimal Taxation and Pension Systems in Overlapping Generations Models. Scientific Research of Faculty of Economics. Electronic Journal, vol. 17, no. 3, pp. 53-84. DOI: 10.38050/2078-3809-2025-17-3-53-84.

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