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Do the Elderly Respond to Taxes on Earnings? Evidence from the Social Security Retirement Earnings Test

  • David S. Loughran
  • Steven Haider

The effective tax on earnings embodied in the Social Security retirement earnings test has been as high as 50 percent. Despite numerous empirical studies, there is surprisingly little agreement about whether the earnings test affects male labor supply. In this paper, the authors provide a comprehensive analysis of the earnings test for men using longitudinal administrative earnings data and more commonly used survey data. They find that much of the response in survey data is obfuscated by measurement error and labor market rigidities. Their results suggest a consistent and substantial response to the earnings test, especially for younger men.

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File URL: http://www.rand.org/content/dam/rand/pubs/working_papers/2007/RAND_WR223-1.pdf
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Paper provided by RAND Corporation in its series Working Papers with number 223-1.

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Length: 53 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:ran:wpaper:223-1
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  1. Richard Disney & Sarah Smith, 2002. "The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom," Economic Journal, Royal Economic Society, vol. 112(478), pages C136-C152, March.
  2. Reimers, Cordelia & Honig, Marjorie, 1993. "The Perceived Budget Constraint under Social Security: Evidence from Reentry Behavior," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 184-204, January.
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  7. Burtless, Gary & Moffitt, Robert A, 1985. "The Joint Choice of Retirement Age and Postretirement Hours of Work," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 209-36, April.
  8. Alan S. Blinder & Roger H. Gordon & Donald E. Wise, 1980. "Reconsidering the Work Disincentive Effects of Social Security," NBER Working Papers 0562, National Bureau of Economic Research, Inc.
  9. Gustman, Alan L & Steinmeier, Thomas L, 1985. "The 1983 Social Security Reforms and Labor Supply Adjustments of Older Individuals in the Long Run," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 237-53, April.
  10. Lundberg, Shelly J, 1985. "Tied Wage-Hours Offers and the Endogeneity of Wages," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 405-10, August.
  11. John Bound & Alan B. Krueger, 1989. "The Extent of Measurement Error In Longitudinal Earnings Data: Do Two Wrongs Make A Right?," NBER Working Papers 2885, National Bureau of Economic Research, Inc.
  12. Burkhauser, Richard V & Turner, John A, 1978. "A Time-Series Analysis on Social Security and Its Effect on the Market Work of Men at Younger Ages," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 701-15, August.
  13. Emmanuel Saez, 1999. "Do Taxpayers Bunch at Kink Points?," NBER Working Papers 7366, National Bureau of Economic Research, Inc.
  14. Jonathan Gruber & Peter Orszag, 2000. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," NBER Working Papers 7923, National Bureau of Economic Research, Inc.
  15. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
  16. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.
  17. Gruber, Jonathan & Orszag, Peter, 2003. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," National Tax Journal, National Tax Association, vol. 56(4), pages 755-73, December.
  18. Baker, Michael & Benjamin, Dwayne, 1999. "How do retirement tests affect the labour supply of older men?," Journal of Public Economics, Elsevier, vol. 71(1), pages 27-51, January.
  19. Alan L. Gustman & Thomas L. Steinmeier, 1991. "Changing the Social Security Rules for Work after 65," ILR Review, Cornell University, ILR School, vol. 44(4), pages 733-745, July.
  20. Alan L. Gustman & Thomas L. Steimeier, 2004. "The Social Security Retirement Earning Test,Retirement and Benefit Claiming," Working Papers wp090, University of Michigan, Michigan Retirement Research Center.
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