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Induced Retirement, Social Security, and the Pyramid Mirage

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  • Casey B. Mulligan

Abstract

Does Social Security redistribute across cohorts? Or is it a program for purchasing the jobs' of the elderly? I formalize both models, showing how they have some predictions in common the most important of which is that generational accounts have the appearance of a pyramid scheme.' I also derive important differences between the two interpretations, and compare those differences with data on the design and incidence of Social Security programs around the world. Since implicit and explicit tax rates on elderly labor income are so high, and so closely (and positively) related with the amount of Social Security spending, and because substitution effects of the program can be as large as its wealth effects, I conclude that Social Security's induced retirement motive is much more important for explaining differences among European countries than is the intergenerational redistribution motive. Furthermore, when policy at least in part designed to induce retirement, its generational incidence can be very different than the incidence of a pyramid scheme, even for those countries where the induced retirement motive is not the dominant one. The possibility of induced retirement also makes it difficult for perpetual intergenerational redistribution to be supported as a subgame perfect political equilibrium.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7679.

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Date of creation: Apr 2000
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Handle: RePEc:nbr:nberwo:7679

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  1. Guido Tabellini, 1990. "A Positive Theory of Social Security," NBER Working Papers 3272, National Bureau of Economic Research, Inc.
  2. Michele Boldrin & Sergi Jimenez-Martin & Franco Peracchi, 1999. "Social Security and Retirement in Spain," NBER Chapters, in: Social Security and Retirement around the World, pages 305-353 National Bureau of Economic Research, Inc.
  3. Casey B. Mulligan & Tomas J. Philipson, 2000. "Merit Motives and Government Intervention: Public Finance in Reverse," NBER Working Papers 7698, National Bureau of Economic Research, Inc.
  4. Jeffrey A. Miron & David N. Weil, 1998. "The Genesis and Evolution of Social Security," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 297-322 National Bureau of Economic Research, Inc.
  5. Casey B Mulligan, 2000. "Can Monopoly Unionism Explain Publically Induced Retirement?," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 157, Chicago - Center for Study of Economy and State.
  6. Pierre Pestieau & Jean-Philippe Stijns, 1999. "Social Security and Retirement in Belgium," NBER Chapters, in: Social Security and Retirement around the World, pages 37-71 National Bureau of Economic Research, Inc.
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Cited by:
  1. Casey B. Mulligan & Tomas J. Philipson, 2000. "Merit Motives and Government Intervention: Public Finance in Reverse," NBER Working Papers 7698, National Bureau of Economic Research, Inc.
  2. Razin, Assaf & Sadka, Efraim & Swagel, Phill, 2001. "The Aging Population and the Size of the Welfare State," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2930, C.E.P.R. Discussion Papers.
  3. Bhattacharya, Joydeep & Reed, Robert, 2003. "Age-Specific Employment Policies," Staff General Research Papers 10256, Iowa State University, Department of Economics.
  4. Disney, Richard & Whitehouse, Edward, 2001. "Cross-country comparisons of pensioners’ incomes," MPRA Paper 16345, University Library of Munich, Germany.
  5. Hagen, Johannes, 2013. "A History of the Swedish Pension System," Working Paper Series, Center for Fiscal Studies 2013:7, Uppsala University, Department of Economics.
  6. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.

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