Article (Scientific journals)
Voting on pensions with endogenous retirement age
Casamatta, Georges; Cremer, Helmuth; Pestieau, Pierre
2005In International Tax and Public Finance, 12 (1), p. 7-28
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Keywords :
social security; retirement age; majority voting
Abstract :
[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.
Disciplines :
Economic systems & public economics
Author, co-author :
Casamatta, Georges
Cremer, Helmuth
Pestieau, Pierre  ;  Université de Liège - ULiège > HEC - École de gestion de l'ULiège > Economie publique
Language :
English
Title :
Voting on pensions with endogenous retirement age
Publication date :
January 2005
Journal title :
International Tax and Public Finance
ISSN :
0927-5940
eISSN :
1573-6970
Publisher :
Springer, Dordrecht, Netherlands
Volume :
12
Issue :
1
Pages :
7-28
Peer reviewed :
Peer Reviewed verified by ORBi
Available on ORBi :
since 07 April 2013

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