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Social security and retirement decision: a positive and normative approach

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Author Info
CREMER, Helmuth
LOZACHMEUR, Jean-Marie
PESTIEAU, Pierre

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Abstract

Social insurance for the elderly is judged responsible for the widely observed trend towards early retirement. In a world of laissez-faire or in a Þrst-best setting, there would be no such trend. However, when Þrst-best instruments are not available, because health and productivity are not observable, the optimal social insurance policy may imply a distortion on the retirement decision. The main point we make is that while there is no doubt that retirement systems induce an excessive bias towards early in many countries, a complete elimination of this bias (i.e., a switch to an actuarially fair system) is not the right answer. This is so and for two reasons. First, some distortions are second-best optimal. This is the normative argument. Second, and on the positive side, the elimination of the bias might be problematic from a political perspective. Depending on the political process, it may either not be feasible or alternatively it may tend to undermine the political support for the pension system itself.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006019.

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Date of creation: 01 Feb 2006
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Handle: RePEc:cor:louvco:2006019

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Related research
Keywords: social security; early retirement; optimal income taxation; ma jority voting. 2006/20 Political information acquisition for social exchange;

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Find related papers by JEL classification:
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Blackwell Publishing, vol. 39(3), pages 297-302, July. [Downloadable!] (restricted)
  2. Cremer, Helmuth & Pestieau, Pierre, 2002. "The Double Dividend of Postponing Retirement," IDEI Working Papers 144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003. [Downloadable!]
    Other versions:
  3. J. A. Mirrlees & P. Diamond, 1982. "Social Insurance with Variable Retirement and Private Saving," Working papers 296, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2002. "Social Security, Retirement Age and Optimal Income Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December. [Downloadable!] (restricted)
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  6. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December. [Downloadable!] (restricted)
  7. Conde-Ruiz, J. Ignacio & Galasso, Vincenzo, 2004. "The macroeconomics of early retirement," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1849-1869, August. [Downloadable!] (restricted)
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  8. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2003. "Voting on Pensions with Endogenous Retirement Age," CEPR Discussion Papers 3778, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Mikhail Golosov & Aleh Tsyvinski, 2004. "Designing Optimal Disability Insurance: A Case for Asset Testing," NBER Working Papers 10792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Pierre Pestieau, 2001. "Are We Retiring too Early?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
  13. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May. [Downloadable!] (restricted)
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  14. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA. [Downloadable!]
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  15. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Retirement Age and Health Expenditures," CEPR Discussion Papers 4774, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  16. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD, Economics Department. [Downloadable!]
  17. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2004. "Optimal Retirement and Disability Benefits with Audit," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(3), pages 278-, September.
  18. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Disability Testing and Retirement," CEPR Discussion Papers 4773, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  19. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Blackwell Publishing, vol. 88(1), pages 25-50.
  20. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2004. "Is There a Political Support for the Double Burden on Prolonged Activity?," CEPR Discussion Papers 4706, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  21. Jonathan Gruber & David Wise, 2005. "Social Security Programs and Retirement around the World: Fiscal Implications, Introduction and Summary," NBER Working Papers 11290, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David E. Bloom & David Canning & Günther Fink & Jocelyn E. Finlay, 2008. "Demographic Change, Institutional Settings, and Labor Supply," PGDA Working Papers 4208, Program on the Global Demography of Aging. [Downloadable!]
  2. Enrique Fatás & Juan A. Lacomba & Francisco M. Lagos & Ana I. Moro, 2008. "Experimental tests on consumption, savings and pensions," ThE Papers 08/14, Department of Economic Theory and Economic History of the University of Granada.. [Downloadable!]
  3. Torben Andersen, 2006. "Increasing Longevity and Social Security Reforms," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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