Voting on Pensions with Endogenous Retirement Age
1
GREMAQ -
Groupe de recherche en économie mathématique et quantitative
2 CREPP - Center of Research in Public Economics and Population Economics
3 CORE - Center of Operation Research and Econometrics [Louvain]
4 DELTA - Département et Laboratoire d'Economie Théorique et Appliquée
5 CEPR - Center for Economic Policy Research
2 CREPP - Center of Research in Public Economics and Population Economics
3 CORE - Center of Operation Research and Econometrics [Louvain]
4 DELTA - Département et Laboratoire d'Economie Théorique et Appliquée
5 CEPR - Center for Economic Policy Research
Georges Casamatta
- Fonction : Auteur
- PersonId : 181378
- IdHAL : georges-casamatta
- ORCID : 0000-0001-6197-5846
- IdRef : 172244013
Helmuth Cremer
- Fonction : Auteur
- PersonId : 833684
Résumé
It is often argued that the observed trend towards early retirement is due mainly to the implicit tax imposed on continued activity of elderly workers. We study the relevance of such a distortion in a political economy model with endogenous age of retirement. The setting is a two-period overlapping generations model. Individuals differ in their productivity. In the first period they work a fixed amount of time; in the second, they choose when to retire and then receive a flat rate pension benefit. Pensions are financed by a payroll tax on earnings in the first and in the second period of life. Such a tax is non distortionary in the first period; it is distortionary in the second period. We allow for some rebating of the second period tax. Individuals vote on the level of the payroll tax given the rebate which can range from 0 (biased system) to 100% (neutral system). We provide sufficient conditions for the existence of a voting equilibrium and study its properties. Under these conditions, high tax rates are supported by all the old and by low productivity young individuals. We show that the pivotal voter is a young individual. The number of young individuals who have higher wage than the pivotal voter equals half the total population. We also show that the introduction of a bias increases the political support for the pension system. Finally, we study the simultaneous determination of the bias and the tax rate through a voting procedure and show that the equilibrium (if any) implies a bias which is always positive and may or not be larger than one.
Domaines
Economies et financesFormat du dépôt | Notice |
---|---|
Type de dépôt | Article dans une revue |
Titre |
en
Voting on Pensions with Endogenous Retirement Age
|
Résumé |
en
It is often argued that the observed trend towards early retirement is due mainly to the implicit tax imposed on continued activity of elderly workers. We study the relevance of such a distortion in a political economy model with endogenous age of retirement. The setting is a two-period overlapping generations model. Individuals differ in their productivity. In the first period they work a fixed amount of time; in the second, they choose when to retire and then receive a flat rate pension benefit. Pensions are financed by a payroll tax on earnings in the first and in the second period of life. Such a tax is non distortionary in the first period; it is distortionary in the second period. We allow for some rebating of the second period tax. Individuals vote on the level of the payroll tax given the rebate which can range from 0 (biased system) to 100% (neutral system). We provide sufficient conditions for the existence of a voting equilibrium and study its properties. Under these conditions, high tax rates are supported by all the old and by low productivity young individuals. We show that the pivotal voter is a young individual. The number of young individuals who have higher wage than the pivotal voter equals half the total population. We also show that the introduction of a bias increases the political support for the pension system. Finally, we study the simultaneous determination of the bias and the tax rate through a voting procedure and show that the equilibrium (if any) implies a bias which is always positive and may or not be larger than one.
|
Auteur(s) |
Georges Casamatta
1
, Helmuth Cremer
1
, Pierre Pestieau
2, 3, 4, 5
1
GREMAQ -
Groupe de recherche en économie mathématique et quantitative
( 744 )
- manufacture des tabacs - bat. F 21 Allée de Brienne 31000 TOULOUSE
- France
2
CREPP -
Center of Research in Public Economics and Population Economics
( 143557 )
- Belgique
3
CORE -
Center of Operation Research and Econometrics [Louvain]
( 48233 )
- 34, Voie du Roman Pays B-1348 Louvain-la-Neuve
- Belgique
4
DELTA -
Département et Laboratoire d'Economie Théorique et Appliquée
( 25318 )
- 48 boulevard Jourdan - 75014 Paris
- France
5
CEPR -
Center for Economic Policy Research
( 143559 )
- Royaume-Uni
|
Page/Identifiant |
7-28
|
Numéro |
1
|
Comité de lecture |
Oui
|
Vulgarisation |
Non
|
Langue du document |
Anglais
|
Nom de la revue |
|
Audience |
Non spécifiée
|
Date de publication |
2005-01
|
Volume |
12
|
Localisation géographique du document |
UMR 1291 UMR INRA / CNRS / Univ. Toulouse 1 : Groupe de Recherche en Economie Mathématique et Quantitative, Centre de recherche de Toulouse, 31326 CASTANET-TOLOSAN CEDEX, FRA
|
Public visé |
Scientifique
|
Version du document |
version éditeur
|
Voir aussi |
|
Domaine(s) |
|
Mots-clés (JEL) |
|
Indexation contrôlée |
|
Mots-clés |
en
Social security, Retirement age, Majority voting
|
DOI | 10.1007/s10797-005-6392-2 |
ProdINRA | 23970 |
Loading...