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Quantifying The Laffer Curve On The Continued Activity Tax In A Dynastic Framework

  • Jean-Olivier Hairault
  • François Langot
  • Thepthida Sopraseuth

It is argued that the tax on continued activity should be removed by implementing actuarially fair schemes. However, these schemes cannot fund the expected Social Security (SS) deficit. This article proposes to give individuals a "fraction" of the actuarially fair incentives in the case of postponed retirement. SS faces a trade-off between giving enough incentives to make individuals delay retirement and giving little increase in pensions in order to help finance its expected deficit. This trade-off is captured by a Laffer curve. Finally, when the SS system aims to maximize welfare, the optimal tax on postponed retirement is still strictly positive. Copyright � 2008 the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 49 (2008)
Issue (Month): 3 (08)
Pages: 755-797

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Handle: RePEc:ier:iecrev:v:49:y:2008:i:3:p:755-797
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  1. P. Aubert & D. Blanchet & D. Blau, 2005. "The labour market after age 50: some elements of a Franco-American comparison," Documents de Travail de la DESE - Working Papers of the DESE g2005-13, Institut National de la Statistique et des Etudes Economiques, DESE.
  2. Hairault, Jean-Olivier & Langot, François & Sopraseuth, Thepthida, 2006. "The Interaction between Retirement and Job Search: A Global Approach to Older Workers Employment," IZA Discussion Papers 1984, Institute for the Study of Labor (IZA).
  3. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  4. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2002. "Social Security, Retirement Age and Optimal Income Taxation," CESifo Working Paper Series 693, CESifo Group Munich.
  5. Mark Huggett & Gustavo Ventura, 1998. "On the Distributional Effects of Social Security Reform," Working Papers 9801, Centro de Investigacion Economica, ITAM.
  6. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
  7. Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2003. "A welfare analysis of social security in a dynastic framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1247-1274, November.
  8. David A. Wise, 1989. "The Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise89-1, June.
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