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Retirement and Social Security: A Political Economy Perspective

  • Ryo Arawatari


    (Faculty of Economics, Shinshu University)

  • Tetsuo Ono


    (Graduate School of Economics, Osaka University)

Countries with higher implicit taxes on continued work are associated with lower labor force participation rates of the elderly. This paper constructs a politicoeconomic model that accounts for this feature based on multiple, self-fulfilling expectations of agents. In this model, agents are identical at birth and can become skilled (or remain unskilled) through educational investment. When agents hold expectations of larger social security benefits, it provides a disincentive to engage in educational investment, thereby resulting in an unskilled majority. In turn, this unskilled majority supports larger social security benefits, which induces the retirement of the elderly and thus results in a lower labor force participation rate. The opposite applies when agents have expectations of smaller social security benefits in their old age.

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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 10-04-Rev.

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Length: 34 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:osk:wpaper:1004r
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  1. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Voting on pensions with endogenous retirement age," CORE Discussion Papers RP 1754, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  6. Hassler, John & Mora, José V Rodríguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2001. "The Survival of the Welfare State," CEPR Discussion Papers 2905, C.E.P.R. Discussion Papers.
  7. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
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  9. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  10. Grossman, Gene M & Helpman, Elhanan, 1998. "Intergenerational Redistribution with Short-Lived Governments," Economic Journal, Royal Economic Society, vol. 108(450), pages 1299-1329, September.
  11. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Is there a political support for the double burden on prolonged activity?," CORE Discussion Papers RP 1865, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2000. "Early Retirement," CEPR Discussion Papers 2589, C.E.P.R. Discussion Papers.
  13. Galasso, Vincenzo, 2008. "Postponing retirement: the political effect of aging," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2157-2169, October.
  14. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2003. "The Macroeconomics of Early Retirement," CEPR Discussion Papers 3896, C.E.P.R. Discussion Papers.
  15. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 505-29, August.
  16. repec:fda:fdaddt:2005-03 is not listed on IDEAS
  17. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
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