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Social security and retirement decision: a positive and normative approach

Author

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  • CREMER, Helmuth
  • LOZACHMEUR, Jean-Marie
  • PESTIEAU, Pierre

Abstract

Social insurance for the elderly is judged responsible for the widely observed trend towards early retirement. In a world of laissez-faire or in a first-best setting, there would be no such trend. However, when first-best instruments are not available, because health and productivity are not observable, the optimal social insurance policy may imply a distortion on the retirement decision. The main point we make is that while there is no doubt that retirement systems induce an excessive bias towards early in many countries, a complete elimination of this bias (i.e., a switch to an actuarially fair system) is not the right answer. This is so and for two reasons. First, some distortions are second-best optimal. This is the normative argument. Second, and on the positive side, the elimination of the bias might be problematic from a political perspective. Depending on the political process, it may either not be feasible or alternatively it may tend to undermine the political support for the pension system itself.

Suggested Citation

  • CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, 2006. "Social security and retirement decision: a positive and normative approach," LIDAM Discussion Papers CORE 2006019, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2006019
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2006.html
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Jubilación Flexible
      by Sergi Jiménez in Nada Es Gratis on 2017-11-03 11:00:38

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    Cited by:

    1. Marie‐Louise Leroux, 2010. "The Political Economy of Social Security under Differential Longevity and Voluntary Retirement," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 151-170, February.
    2. Jacobs, Bas & Schindler, Dirk, 2012. "On the desirability of taxing capital income in optimal social insurance," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 853-868.
    3. Andersen, Torben M., 2008. "Increasing longevity and social security reforms--A legislative procedure approach," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 633-646, April.
    4. Alfonso Sánchez-Martin & J. García-Pérez & Sergi Jiménez-Martín, 2014. "Delaying the Normal and Early Retirement Ages in Spain: Behavioural and Welfare Consequences for Employed and Unemployed Workers," De Economist, Springer, vol. 162(4), pages 341-375, December.
    5. Jante Parlevliet, 2017. "What drives public acceptance of reforms? Longitudinal evidence from a Dutch pension reform," Public Choice, Springer, vol. 173(1), pages 1-23, October.
    6. Tim Buyse & Freddy Heylen & Renaat Van de Kerckhove, 2013. "Pension reform, employment by age, and long-run growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(2), pages 769-809, April.
    7. Philippe Choné & Guy Laroque, 2018. "On the redistributive power of pensions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(3), pages 519-546, March.
    8. Bruce, Neil & Turnovsky, Stephen J., 2013. "Social security, growth, and welfare in overlapping generations economies with or without annuities," Journal of Public Economics, Elsevier, vol. 101(C), pages 12-24.
    9. Enrique Fatás & Juan A. Lacomba & Francisco M. Lagos & Ana I. Moro, 2008. "Experimental tests on consumption, savings and pensions," ThE Papers 08/14, Department of Economic Theory and Economic History of the University of Granada..
    10. Euwals, Rob & Trevisan, Elisabetta, 2014. "Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners," IZA Discussion Papers 8466, Institute of Labor Economics (IZA).
    11. Hupfeld, Stefan, 2009. "Rich and healthy--better than poor and sick?: An empirical analysis of income, health, and the duration of the pension benefit spell," Journal of Health Economics, Elsevier, vol. 28(2), pages 427-443, March.
    12. Amedeo Spadaro, 2008. "Optimal taxation, social contract and the four worlds of welfare capitalism," Working Papers 98, ECINEQ, Society for the Study of Economic Inequality.
    13. Renaat Van de Kerckhove & Freddy Heylen & Tim Buyse, 2011. "Pension reform, employment by age, and long-run growth in OECD countries," 2011 Meeting Papers 736, Society for Economic Dynamics.
    14. Johann K. Brunner & Bernd Hoffmann, 2010. "Versicherungsmathematisch korrekte Pensionsabschläge," Economics working papers 2010-13, Department of Economics, Johannes Kepler University Linz, Austria.
    15. Rob Euwals & Annemiek van Vuren & Daniel van Vuuren, 2011. "The impact of reforms on labour market exit probabilities," CPB Discussion Paper 179, CPB Netherlands Bureau for Economic Policy Analysis.
    16. Даниелян, Владимир, 2016. "Детерминанты Пенсионного Возраста: Обзор Исследований [Determinants of Retirement Age: A Review of Research]," MPRA Paper 73865, University Library of Munich, Germany.
    17. Torben Andersen, 2006. "Increasing Longevity and Social Security Reforms," CESifo Working Paper Series 1789, CESifo.
    18. Amadéo Spadaro, 2008. "Optimal taxation, social contract and the four worlds of welfare capitalism," Working Papers halshs-00586290, HAL.
    19. Euwals, Rob & van Vuren, Annemiek & van Vuuren, Daniel, 2011. "The Decline of Early Retirement Pathways in the Netherlands: An Empirical Analysis for the Health Care Sector," IZA Discussion Papers 5810, Institute of Labor Economics (IZA).
    20. David E. Bloom & David Canning & Günther Fink & Jocelyn E. Finlay, 2008. "Demographic Change, Institutional Settings, and Labor Supply," PGDA Working Papers 4208, Program on the Global Demography of Aging.
    21. David E. Bloom & David Canning & Gunther Fink & Jocelyn Finlay, 2009. "The Effect of Social Security Reform on Male Retirement in High and Middle Income Countries," PGDA Working Papers 4809, Program on the Global Demography of Aging.

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    More about this item

    Keywords

    social security; early retirement; optimal income taxation; ma jority voting. 2006/20 Political information acquisition for social exchange;
    All these keywords.

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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