Abstract
Labor Pension Act has been enforced in July 2005. There are three significant issues ralated to the enforcement of the act. The first is the impact of the policy on households. Second, how much pension we can receive? Finally, whether the Tax Incentives policy will provide more subsidies to the superior labors than the inferior labors and whether does it cause a bigger income gap within all the labors? Therefore, the purpose of this study is to develop an useful model to analyze the effect of Labor Pension Act and Labor Standards Act Pension System on the consumption and savings of households. Moreover, this model also can be use to calculate how much pension households can receive. This paper applies the concept of Markov chain (Imrohoroglu, Imrohoroglu, and Joines, 1998) to develop a partial general equilibrium model for the security system in Taiwan. Through the study, it can be found that Labor Pension Act may increase the present value of utility and households could receive higher present value of pensions from employers’ contributions. It is thought that the Act could bring higher income for households after they retire. However, it is thought that the Act could also cause the gap of income distribution between males and females widen due to the different positions in the labor market. Moreover, tax incentives will enlarge this gap much seriously. As a result, the government should keep an eye on the influence of such controversial tax policy, and beware of its impact all the time.