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Retirement and Social Security: A Political Economy Perspective

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  • Ryo Arawatari

    ()
    (Faculty of Economics, Shinshu University)

  • Tetsuo Ono

    ()
    (Graduate School of Economics, Osaka University)

Abstract

Countries with higher implicit taxes on continued work are associated with lower labor force participation rates of the elderly. This paper constructs a politicoeconomic model that accounts for this feature based on multiple, self-fulfilling expectations of agents. In this model, agents are identical at birth and can become skilled (or remain unskilled) through educational investment. When agents hold expectations of higher future taxation (i.e., higher social security benefits), it provides a disincentive to engage in educational investment, thereby resulting in an unskilled majority. In turn, this unskilled majority supports higher taxation, which induces the retirement of the elderly and thus results in a lower labor force participation rate. The opposite applies when agents have expectations of lower taxes in their old age.

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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 10-04.

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Length: 34 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:osk:wpaper:1004

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: Political equilibrium; Retirement; Self-fulfilling expectations; Social security;

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  1. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 96(3), pages 505-29, August.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Why Greece will never make it: self-fulfilling expectations about social security
    by Economic Logician in Economic Logic on 2010-09-24 14:44:00
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Cited by:
  1. Ryo Arawatari & Tetsuo Ono, 2008. "A Political Economy Model of Earnings Mobility and Redistribution Policy," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 08-18-Rev.2, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Sep 2010.

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