Social Desirability of Earning Tests
In many countries pension systems involve some form of earnings test; i.e., an individual’s benefits are reduced if he has labour income. This paper examines whether or not such earning tests emerge when pension system and income tax are optimally designed. We use a simple model with individuals differing both in productivity and their health status. The working life of an individual has two 'endings': an official retirement age at which he starts drawing pension benefits (while possibly supplementing them with some labour income) and an effective age of retirement at which professional activity is completely given up. Weekly work time is endogenous, but constant in the period before official retirement and again constant (but possibly at a different level), after official retirement. Earnings tests mean that earnings are subject to a higher tax after official retirement than before. We show under which conditions earnings tests emerge both under a linear and under a nonlinear tax scheme. In particular, we show that earning tests will occur if heterogeneities in health or productivity are more significant after official retirement than before.
|Date of creation:||Mar 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard Disney & Sarah Smith, 2002.
"The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom,"
Royal Economic Society, vol. 112(478), pages C136-C152, March.
- Richard Disney & Sarah Smith, 2002. "The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom," CeRP Working Papers 17, Center for Research on Pensions and Welfare Policies, Turin (Italy).
- Alan L. Gustman & Thomas L. Steimeier, 2004.
"The Social Security Retirement Earning Test,Retirement and Benefit Claiming,"
wp090, University of Michigan, Michigan Retirement Research Center.
- Alan L. Gustman & Thomas L. Steinmeier, 2004. "The social Security Retirement Earnings Test, Retirement and Benefit Claiming," NBER Working Papers 10905, National Bureau of Economic Research, Inc.
- Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
- CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, .
"Social security, retirement age and optimal income taxation,"
CORE Discussion Papers RP
-1722, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Social security, retirement age and optimal income taxation," Journal of Public Economics, Elsevier, vol. 88(11), pages 2259-2281, September.
- Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2002. "Social Security, Retirement Age and Optimal Income Taxation," CESifo Working Paper Series 693, CESifo Group Munich.
- Michele Boldrin & Juan J. Dolado & Juan F. Jimeno & Franco Peracchi, 1999. "The future of pensions in Europe," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 287-320, October.
- Leora Friedberg, 1999.
"The Labor Supply Effects of the Social Security Earnings Test,"
NBER Working Papers
7200, National Bureau of Economic Research, Inc.
- Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February.
- Robert Fenge & Pierre Pestieau, 2005. "Social Security and Early Retirement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062496, June.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5551. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.