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Quantifying The Laffer Curve On The Continued Activity Tax In A Dynastic Framework

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  • Jean-Olivier Hairault
  • François Langot
  • Thepthida Sopraseuth

Abstract

It is argued that the tax on continued activity should be removed by implementing actuarially fair schemes. However, these schemes cannot fund the expected Social Security (SS) deficit. This article proposes to give individuals a "fraction" of the actuarially fair incentives in the case of postponed retirement. SS faces a trade-off between giving enough incentives to make individuals delay retirement and giving little increase in pensions in order to help finance its expected deficit. This trade-off is captured by a Laffer curve. Finally, when the SS system aims to maximize welfare, the optimal tax on postponed retirement is still strictly positive. Copyright � 2008 the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 49 (2008)
Issue (Month): 3 (08)
Pages: 755-797

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Handle: RePEc:ier:iecrev:v:49:y:2008:i:3:p:755-797

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  1. Luisa Fuster, 1997. "Is altruism important for understanding the long-run effects of social security?," Economics Working Papers 234, Department of Economics and Business, Universitat Pompeu Fabra.
  2. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, . "Social security, retirement age and optimal income taxation," CORE Discussion Papers RP -1722, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  4. P. Aubert & D. Blanchet & D. Blau, 2005. "The labour market after age 50: some elements of a Franco-American comparison," Documents de Travail de la DESE - Working Papers of the DESE, Institut National de la Statistique et des Etudes Economiques, DESE g2005-13, Institut National de la Statistique et des Etudes Economiques, DESE.
  5. David A. Wise, 1989. "The Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise89-1, October.
  6. Hugett, M. & Ventura, G., 1997. "On the Distributional Effects of Social Security Reform," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9710, University of Western Ontario, Department of Economics.
  7. Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2003. "A welfare analysis of social security in a dynastic framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1247-1274, November.
  8. Hairault, Jean-Olivier & Langot, François & Sopraseuth, Thepthida, 2006. "The Interaction between Retirement and Job Search: A Global Approach to Older Workers Employment," IZA Discussion Papers 1984, Institute for the Study of Labor (IZA).
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Cited by:
  1. Moreno-Galbis Eva & LANGOT Francois, 2008. "Does growth discriminates against older workers?," 2008 Meeting Papers 590, Society for Economic Dynamics.

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