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Retirement and Social Security: A Political Economy Perspective

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Author Info

  • 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 larger social security benefits, it provides a disincentive to engage in educational investment, thereby resulting in an unskilled majority. In turn, this unskilled majority supports larger social security benefits, 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 smaller social security benefits 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-Rev.

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

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Keywords: Political equilibrium; Retirement; Self-fulfilling expectations; Social security;

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References

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  1. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Voting on pensions with endogenous retirement age," CORE Discussion Papers RP -1754, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  4. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "The Macroeconomic of Early Retirement," Working Papers 194, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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  7. Eytan Sheshinski, 1977. "A Model of Social Security and Retirement Decisions," NBER Working Papers 0187, National Bureau of Economic Research, Inc.
  8. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
  9. Juan Antonio Lacomba & Francisco Miguel Lagos, 2005. "Political Election on Legal Retirement Age," ThE Papers 05/10, Department of Economic Theory and Economic History of the University of Granada..
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  13. Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2003. "Democratic Public Good Provision," CEPR Discussion Papers 4044, C.E.P.R. Discussion Papers.
  14. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, 2005. "The Evolution of Retirement," Working Papers 278, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  15. Galasso, Vincenzo, 2008. "Postponing retirement: the political effect of aging," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2157-2169, October.
  16. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  17. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA.
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Blog mentions

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 08-18-Rev.3, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Aug 2011.

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