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Should Old-Age Benefits Be Earnings-Tested?

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Author Info

  • Määttänen, Niku

    () (ETLA - The Research Institute of the Finnish Economy)

  • Poutvaara, Panu

    () (University of Munich)

Abstract

We study the welfare effects of earnings testing flat-rate old-age benefits in a quantitative overlapping generations model with idiosyncratic labor income risk. In our model economy, even a moderate earnings testing reduces individuals’ expected lifetime utility, whenever other taxes are taken into account. Moreover, it also lowers the realized lifetime utilities of those at the bottom of the lifetime utility distribution.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2616.

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Length: 29 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2616

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Keywords: means-testing; retirement; social security;

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  1. Flodén, Martin & Linde, Jesper, 1998. "Idiosyncratic Risk in the U.S. and Sweden: Is there a Role for Government Insurance?," Seminar Papers 654, Stockholm University, Institute for International Economic Studies.
  2. Alan L. Gustman & Thomas L. Steinmeier, 1986. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
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  4. Mikhail Golosov & Aleh Tsyvinski, 2004. "Designing Optimal Disability Insurance: A Case for Asset Testing," NBER Working Papers 10792, National Bureau of Economic Research, Inc.
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  6. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2002. "Social Security, Retirement Age and Optimal Income Taxation," CESifo Working Paper Series 693, CESifo Group Munich.
  7. repec:bla:restud:v:72:y:2005:i:2:p:395-427 is not listed on IDEAS
  8. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
  9. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
  10. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434.
  11. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  12. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  13. Alexander Michaelides & Francisco Gomes, 2004. "Aggregate Implications of Defined Benefit and Defined Contribution Systems," 2004 Meeting Papers 335, Society for Economic Dynamics.
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Cited by:
  1. Kudrna, George & Woodland, Alan, 2011. "An inter-temporal general equilibrium analysis of the Australian age pension means test," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 61-79, March.
  2. Chung Tran & Alan Woodland, 2011. "Trade-Offs in Means Tested Pension Design," ANU Working Papers in Economics and Econometrics 2011-550, Australian National University, College of Business and Economics, School of Economics.

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