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A Quantitative Investigation of the Laffer Curve on the Continued Work Tax: The French Case

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  • Hairault, Jean-Olivier

    ()
    (University of Paris 1 Panthéon-Sorbonne)

  • Langot, François

    ()
    (University of Le Mans)

  • Sopraseuth, Thepthida

    ()
    (University of Cergy-Pontoise)

Abstract

It is often argued that the tax on continued work should be removed by implementing actuarially fair schemes. However, these schemes cannot help fund the expected Social Security deficit. This paper proposes to give individuals only a fraction of the marginal actuarially fair incentives in case of postponed retirement. Social Security then faces a trade-off between giving enough incentives to make individuals actually 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 that we quantify on French data. Furthermore, we analyze the interactions between wealth and retirement behavior.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1499.

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Length: 37 pages
Date of creation: Feb 2005
Date of revision:
Publication status: published in: International Economic Review, 2008, 49(3), 755-797
Handle: RePEc:iza:izadps:dp1499

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Keywords: actuarially fair benefits; retirement behavior and wealth;

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  1. Didier Blanchet & Louis-Paul Pele, 1999. "Social Security and Retirement in France," NBER Chapters, National Bureau of Economic Research, Inc, in: Social Security and Retirement around the World, pages 101-133 National Bureau of Economic Research, Inc.
  2. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," NBER Working Papers 9183, National Bureau of Economic Research, Inc.
  3. 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.
  4. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  5. John P. Rust, 1989. "A Dynamic Programming Model of Retirement Behavior," NBER Chapters, National Bureau of Economic Research, Inc, in: The Economics of Aging, pages 359-404 National Bureau of Economic Research, Inc.
  6. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
  7. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics, EconWPA 9406005, EconWPA, revised 06 Jul 1994.
  8. Coile, Courtney & Diamond, Peter & Gruber, Jonathan & Jousten, Alain, 2002. "Delays in claiming social security benefits," Journal of Public Economics, Elsevier, Elsevier, vol. 84(3), pages 357-385, June.
  9. Attanasio, Orazio P, et al, 1999. "Humps and Bumps in Lifetime Consumption," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 17(1), pages 22-35, January.
  10. 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.
  11. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, Elsevier, vol. 23(1-2), pages 81-114.
  12. Gruber, Jonathan & Wise, David, 1998. "Social Security and Retirement: An International Comparison," American Economic Review, American Economic Association, American Economic Association, vol. 88(2), pages 158-63, May.
  13. Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 35(1), pages 97-117, February.
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Cited by:
  1. Raquel Fonseca & Thepthida Sopraseuth, 2006. "Welfare Effects of Social Security Reforms Across Europe: The Case of France and Italy," Working Papers, RAND Corporation Publications Department 437, RAND Corporation Publications Department.

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