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Social Security Incentives and Human Capital Investment

  • Morten I. Lau

    (Department of Economics and Finance, Durham Business School, University of Durham)

  • Panu Poutvaara

    ()

    (Department of Economics, University of Helsinki, Finland)

While the effect of social security systems on retirement decisions has received much attention, there are no analytical results on the impact of these systems on individual incentives to invest in human capital. We integrate human capital investment and retirement decisions in an analytical life-cycle model with full certainty and investigate how different social security schemes may affect human capital investment and labor supply. We analyze and compare three different social security systems, differing on whether benefits are conditional on withdrawal from the labor market and on previous income.

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Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 19 (2006)
Issue (Month): 1 (Spring)
Pages: 16-24

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Handle: RePEc:fep:journl:v:19:y:2006:i:1:p:16-24
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  1. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 25-50.
  2. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February.
  3. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
  4. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
  5. J. E. Stiglitz, 1999. "Introduction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 249-254, November.
  6. Poutvaara, Panu, 2000. "Education, mobility of labour and tax competition," Munich Reprints in Economics 19303, University of Munich, Department of Economics.
  7. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Munich Reprints in Economics 19854, University of Munich, Department of Economics.
  8. Svend E. Hougaard Jensen & Morten I. Lau & Panu Poutvaara, 2004. "Efficiency and Equity Aspects of Alternative Social Security Rules," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(3), pages 325-, September.
  9. Boskin, Michael J, 1977. "Social Security and Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 1-25, January.
  10. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  11. Borsch-Supan, Axel, 2000. "Incentive effects of social security on labor force participation: evidence in Germany and across Europe," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 25-49, October.
  12. James R. Hines Jr (ed.), 0. "Tax Competition," Books, Edward Elgar, number 14897, July.
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