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Retirement and Social Security: A Political Economy Perspective

Author

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  • Ryo Arawatari

    () (Faculty of Economics, Shinshu University)

  • Tetsuo Ono

    () (Graduate School of Economics, Osaka University)

Abstract

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.

Suggested Citation

  • Ryo Arawatari & Tetsuo Ono, 2010. "Retirement and Social Security: A Political Economy Perspective," Discussion Papers in Economics and Business 10-04-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:1004r
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1004R.pdf
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Why Greece will never make it: self-fulfilling expectations about social security
      by Economic Logician in Economic Logic on 2010-09-24 19:44:00

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    Cited by:

    1. Ryo Arawatari & Tetsuo Ono, 2015. "A Political Economy Model of Earnings Mobility and Redistribution Policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(3), pages 346-382, June.

    More about this item

    Keywords

    Political equilibrium; Retirement; Self-fulfilling expectations; Social security;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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