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Should Old-age Benefits Be Earnings-tested

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Author Info
Niku Määttänen
Panu Poutvaara

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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. Moreover, it also lowers the realized lifetime utilities of those at the bottom of the lifetime utility distribution.

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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1062.

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Length: 28 pages
Date of creation: 18 Dec 2006
Date of revision:
Handle: RePEc:rif:dpaper:1062

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Related research
Keywords: social security; retirement; means-testing; computational models;

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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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  3. Alan L. Gustman & Thomas L. Steinmeier, 1986. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. 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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  8. Mikhail Golosov & Aleh Tsyvinski, 2003. "Designing Optimal Disability Insurance," Levine's Bibliography 506439000000000217, UCLA Department of Economics. [Downloadable!]
    Other versions:
  9. 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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  10. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-84, May. [Downloadable!] (restricted)
  11. 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)
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  12. 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)
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  13. 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.
  14. 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.
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