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Should Old-Age Benefits Be Earnings-Tested?

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Author Info
Niku Määttänen () (ETLA, Helsinki)
Panu Poutvaara () (University of Helsinki and IZA)

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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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Publisher 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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Related research
Keywords: social security retirement means-testing

Other versions of this item:

Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models

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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. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. Alexander Michaelides & Francisco Gomes, 2004. "Aggregate Implications of Defined Benefit and Defined Contribution Systems," 2004 Meeting Papers 335, Society for Economic Dynamics.
    Other versions:
  4. Mikhail Golosov & Aleh Tsyvinski, 2003. "Designing Optimal Disability Insurance," Levine's Bibliography 506439000000000217, UCLA Department of Economics. [Downloadable!]
    Other versions:
  5. Alan L. Gustman & Thomas L. Steinmeier, 1986. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Mikhail Golosov & Aleh Tsyvinski, 2005. "Designing Optimal Disability Insurance: A Case for Asset Testing," Levine's Bibliography 784828000000000450, UCLA Department of Economics. [Downloadable!]
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  7. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-84, May. [Downloadable!] (restricted)
  8. 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)
    Other versions:
  9. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Martin Floden & Jesper Lindé, 2001. "Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 406-437, July. [Downloadable!] (restricted)
    Other versions:
  12. 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.
  13. 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.
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. Rita Asplund, 2007. "Finland: Decentralisation Tendencies within a Collective Wage Bargaining System," Discussion Papers 1077, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Jukka Lassila & Tarmo Valkonen, 2007. "Longevity Adjustment of Pension Benefits," Discussion Papers 1073, The Research Institute of the Finnish Economy. [Downloadable!]
  3. Kari Alho & Nuutti Nikula, 2007. "Productivity, Employment and Taxes - A SVAR Analysis of Trade-offs and Impacts," Discussion Papers 1074, The Research Institute of the Finnish Economy. [Downloadable!]
  4. Jyrki Ali-Yrkkö & Mika Pajarinen & Petri Rouvinen & Pekka Ylä-Anttila, 2007. "Family Businesses and Globalization in Finland," Discussion Papers 1080, The Research Institute of the Finnish Economy. [Downloadable!]
  5. Paavo Suni, 2007. "Oil Prices and the Russian Economy. Some Simulation Studies with NiGEM," Discussion Papers 1088, The Research Institute of the Finnish Economy. [Downloadable!]
  6. Mikko Mäkinen, 2007. "Do Stock Opiton Schemes Affect Technical Inefficiency? Evidence from Finland," Discussion Papers 1085, The Research Institute of the Finnish Economy. [Downloadable!]
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