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Should Old-age Benefits Be Earnings-tested

  • Määttänen, Niku
  • Poutvaara, Panu

We study the welfare effects of earnings testing flat-rate old-age benefits in a quantitative overlapping generations model with idiosyncratic labor income risk. In our model economy, even a moderate earnings testing reduces individualsŽ expected lifetime utility. Moreover, it also lowers the realized lifetime utilities of those at the bottom of the lifetime utility distribution.

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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1062.

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Length: 28 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:rif:dpaper:1062
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  1. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
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  13. Francisco Gomes & Alexander Michaelides, 2003. "Aggregate implications of defined benefit and defined contribution systems," LSE Research Online Documents on Economics 24868, London School of Economics and Political Science, LSE Library.
  14. 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.
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  18. Alexander Michaelides & Francisco Gomes, 2004. "Aggregate Implications of Defined Benefit and Defined Contribution Systems," 2004 Meeting Papers 335, Society for Economic Dynamics.
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