Carbon Tax, Pensions and Public Deficits: The Hidden Cost of the Compartmentalization of Expertise

This paper aims at raising attention to two intertwined issues. The first one concerns the consequences of the prevailing intellectual compartmentalization between questions related to energy and climate on the one hand, and to the viability of social security systems on the other (the viability of those systems is challenged by the increasing exposure to international competition and the ageing of the population). The second issue is about the fact that expertise on the funding of pensions are conducted under partial equilibrium analysis and ignore the general equilibrium effects of the various funding options on competitiveness, employment and wages. We take the methodological venture of building a general equilibrium vision of France for 2020 that is consistent with a scenario of the Conseil d'Orientation des Retraites. We first emphasize the limitations of policies that either i) use only one of the present instruments of the pension system (social contributions, retirement age), or ii) look for new resources by only considering an increase of income tax or VAT. Then we present a way to remove those limitations by introducing a carbon tax as a component of a policy package designed to absorb the deficits of the social accounts. We show that the current compartmentalization of expertise is dangerous, both for the funding of the pension system as well as for removing the obstacles to an ambitious climate policy. (authors)