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Pension Reform and Labor Market Incentives

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  • Walter H. Fisher

    ()

  • Christian Keuschnigg

    ()

Abstract

This paper investigates how parametric reform in a pay-as-you-go pension system with a tax benefit link affects retirement incentives and work incentives of prime-age workers. We find that postponed retirement tends to harm incentives of prime-age workers in the presence of a tax benefit link, thereby creating a policy trade-off in stimulating aggregate labor supply. We show how several popular reform scenarios are geared either towards young or old workers, or, indeed, both groups under appropriate conditions. We also provide a sharp characterization of the excess burden of pension insurance and show how it depends on the behavioral supply elasticities on the extensive and intensive margins and the effective tax rates implicit in contribution rates.

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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2007 with number 2007-13.

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Length: 44 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:usg:dp2007:2007-13

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Keywords: Pension reform; retirement; hours worked; tax benefit link; actuarial adjustment; excess burden;

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References

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Citations

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Cited by:
  1. Miguel Sánchez Romero & Joze Sambt & Alexia Prskawetz, 2012. "Quantifying the role of alternative pension reforms on the Austrian economy," MPIDR Working Papers WP-2012-026, Max Planck Institute for Demographic Research, Rostock, Germany.
  2. T. Buyse & F. Heylen & R. Van De Kerckhove, 2011. "Pension reform, employment by age, and long-run growth in OECD countries," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/719, Ghent University, Faculty of Economics and Business Administration.
  3. Jan Bonenkamp & Yvonne Adema & Lex Meijdam, 2013. "Flexible pension take-up in social security," CPB Discussion Paper 254, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Keuschnigg, Christian & Fisher, Walter, 2011. "Life-Cycle Unemployment, Retirement and Parametric Pension Reform," Economics Working Paper Series 1119, University of St. Gallen, School of Economics and Political Science.
  5. Yvonne Adema & Jan Bonenkamp & Lex Meijdam, 2013. "Flexible Pension Take-up in Social Security," Tinbergen Institute Discussion Papers 13-091/VI, Tinbergen Institute.
  6. Maria Bas & Ivan Ledezma, 2007. "Market Access and the Evolution of within Plant Productivity in Chile," CESifo Working Paper Series 2077, CESifo Group Munich.
  7. Niklas Potrafke, 2011. "Unemployment, Human Capital Depreciation and Pension Benefits: An Empirical Evaluation of German Data," Working Paper Series of the Department of Economics, University of Konstanz 2011-05, Department of Economics, University of Konstanz.
  8. T. Buyse & F. Heylen & R. Van De Kerckhove, 2012. "Pension reform in an OLG model with heterogeneous abilities," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/810, Ghent University, Faculty of Economics and Business Administration.
  9. Iñigo Iturbe-Ormaetxe & Guadalupe Valera, 2012. "Social security reform and the support for public education," Journal of Population Economics, Springer, vol. 25(2), pages 609-634, January.
  10. Kinnunen, Helvi, 2008. "Government funds and demographic transition – alleviating ageing costs in a small open economy," Research Discussion Papers 21/2008, Bank of Finland.
  11. Marczok, Yvonne Maria & Amann, Erwin, 2013. "Labor demand for senior employees in the context of early retirement," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79781, Verein für Socialpolitik / German Economic Association.
  12. Tim Buyse & Freddy Heylen & Renaat Van de Kerckhove, 2013. "Pension reform, employment by age, and long-run growth," Journal of Population Economics, Springer, vol. 26(2), pages 769-809, April.

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