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

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  • 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 Post-Print 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:journl: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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