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Social Security, Endogenous Retirement, and Intrahousehold Cooperation

  • Laura Turner

    (University of Toronto)

  • Giovanni Gallipoli

    (University of British Columbia)

This paper studies the retirement incentives generated by the U.S. Social Security system in a framework which allows for different degrees of cooperation and strategic interaction between spouses. We examine the relative empirical performance of models specified under different assumptions about spouses' preferences (specifically over complementarities in leisure during retirement) and commitment to a jointly optimal retirement path. We assess the models' relative ability to replicate a large set of economic choices observed at or around the time of retirement. These choices include the tendency of individuals to retire close to the first availability of regular Social Security retirement benefits; for spouses to retire approximately at the same time; and for transitions into retirement to be made either through "bridge jobs" -- exit from a full-time career job several years before full retirement -- or through application for Social Security disability benefits. Our results suggest a role for non-cooperative behavior in households in which main-earners are subject to large transfer liabilities towards second-earners, which effectively introduce a `tax wedge' on earned income and affect both labor supply and retirement decisions. The different models also suggest different welfare implications for current Social Security policy in partial equilibrium, with the utility value of most features of the current system increasing with spousal complementarity in leisure, but decreasing in the degree non-cooperation between household members approaching retirement.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 935.

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Date of creation: 2011
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Handle: RePEc:red:sed011:935
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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