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Pension Taxes versus Early Retirement Rights


  • Orszag, Mike

    () (Towers Watson)

  • Snower, Dennis J.

    () (Kiel Institute for the World Economy)


This paper deals with two policy approaches to address the problem of the “pensions time bomb” by influencing private-sector pension provision. In assessing the role of private-sector pensions, it is common to concentrate exclusively on the issue of whether early retirement penalties or late retirement benefits are actuarially fair. We argue that this focus is unbalanced since private-sector pension arrangements have significant implications for governments' finances. When private pensions encourage early retirement, they reduce the number of people paying taxes and increase the number of people supplementing their private pensions through various forms of public support. To induce private-sector pension providers to internalize this externality, we examine two policy responses: taxing private pension receipts of early retirees, and issuing “early retirement rights.” The government’s receipts from the pension taxes or the sale of early retirement rights are used, in part, to provide employment vouchers for people of pensionable age.

Suggested Citation

  • Orszag, Mike & Snower, Dennis J., 2002. "Pension Taxes versus Early Retirement Rights," IZA Discussion Papers 536, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp536

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    References listed on IDEAS

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    Cited by:

    1. Karakaya, Güngör, 2008. "Early cessation of activity in the labour market: impact of supply and demand factors," MPRA Paper 13390, University Library of Munich, Germany.

    More about this item


    pensions; employment; taxes; early retirement;

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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