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Quantifying the Laffer Curve on the Continued Activity Tax in a Dynastic Framework

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Author Info

  • Jean-Olivier Hairault

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • François Langot

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

  • Thepthida Sopraseuth

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

Abstract

It is argued that the tax on continued activity should be removed by implementing actuariallyfair schemes. However, these schemes cannot fund the expected Social Security deficit. This paper proposes to give individuals a fraction of the actuarially-fair incentives in the case of postponed retirement. Social Security faces a trade-off between giving enough incentives to make individualselay 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 Social Security system aims to maximize welfare, the optimal tax on postponed retirement is still strictly positive.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00178465.

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Date of creation: Jul 2008
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Publication status: Published, International Economic Review, 2008, 49, 3, 755-797
Handle: RePEc:hal:cesptp:halshs-00178465

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00178465
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Keywords: retirement behavior and wealth; actuarially-fair benefits.;

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  1. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Social security, retirement age and optimal income taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 88(11), pages 2259-2281, September.
  2. 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.
  3. Mark Huggett & Gustavo Ventura, 1999. "On the Distributional Effects of Social Security Reform," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 498-531, July.
  4. Luisa Fuster, 1997. "Is altruism important for understanding the long-run effects of social security?," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 234, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  6. David A. Wise, 1989. "The Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number wise89-1.
  7. 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).
  8. 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.
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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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