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Induced Retirement, Social Security, and the Pyramid Mirage

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  • Casey B. Mulligan

Abstract

Does Social Security redistribute across cohorts? Or is it a program for purchasing the jobs' of the elderly? I formalize both models, showing how they have some predictions in common the most important of which is that generational accounts have the appearance of a pyramid scheme.' I also derive important differences between the two interpretations, and compare those differences with data on the design and incidence of Social Security programs around the world. Since implicit and explicit tax rates on elderly labor income are so high, and so closely (and positively) related with the amount of Social Security spending, and because substitution effects of the program can be as large as its wealth effects, I conclude that Social Security's induced retirement motive is much more important for explaining differences among European countries than is the intergenerational redistribution motive. Furthermore, when policy at least in part designed to induce retirement, its generational incidence can be very different than the incidence of a pyramid scheme, even for those countries where the induced retirement motive is not the dominant one. The possibility of induced retirement also makes it difficult for perpetual intergenerational redistribution to be supported as a subgame perfect political equilibrium.

Suggested Citation

  • Casey B. Mulligan, 2000. "Induced Retirement, Social Security, and the Pyramid Mirage," NBER Working Papers 7679, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7679
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    References listed on IDEAS

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    1. Casey B Mulligan, 2000. "Can Monopoly Unionism Explain Publically Induced Retirement?," University of Chicago - George G. Stigler Center for Study of Economy and State 157, Chicago - Center for Study of Economy and State.
    2. Casey Mulligan & Tomas Philipson, "undated". "Merit Motives and Government Intervention: Public Finance in Reverse," University of Chicago - Population Research Center 2000-03, Chicago - Population Research Center.
    3. Tabellini, Guido, 2000. " A Positive Theory of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 523-545, June.
    4. Jeffrey A. Miron & David N. Weil, 1998. "The Genesis and Evolution of Social Security," NBER Chapters,in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 297-322 National Bureau of Economic Research, Inc.
    5. Pierre Pestieau & Jean-Philippe Stijns, 1999. "Social Security and Retirement in Belgium," NBER Chapters,in: Social Security and Retirement around the World, pages 37-71 National Bureau of Economic Research, Inc.
    6. Michele Boldrin & Sergi Jimenez-Martin & Franco Peracchi, 1999. "Social Security and Retirement in Spain," NBER Chapters,in: Social Security and Retirement around the World, pages 305-353 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Casey Mulligan & Tomas Philipson, "undated". "Merit Motives and Government Intervention: Public Finance in Reverse," University of Chicago - Population Research Center 2000-03, Chicago - Population Research Center.
    2. Hagen, Johannes, 2013. "A History of the Swedish Pension System," Working Paper Series, Center for Fiscal Studies 2013:7, Uppsala University, Department of Economics.
    3. Phillip L Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
    4. Assaf Razin & Efraim Sadka & Phillip Swagel, 2002. "The Aging Population and the Size of the Welfare State," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 900-918, August.
    5. Bhattacharya, Joydeep & Reed, Robert, 2003. "Age-Specific Employment Policies," Staff General Research Papers Archive 10256, Iowa State University, Department of Economics.
    6. Disney, Richard & Whitehouse, Edward, 2001. "Cross-country comparisons of pensioners’ incomes," MPRA Paper 16345, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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