Citation

Discussion Paper Details

Please find the details for DP5542 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Social Security and Retirement Decision: A Positive and Normative Approach

Author(s): Helmuth Cremer, Jean-Marie Lozachmeur and Pierre Pestieau

Publication Date: March 2006

Keyword(s): early retirement, majority voting, optimal income taxation and social security

Programme Area(s): Public Economics

Abstract: Social insurance for the elderly is judged responsible for the widely observed trend towards early retirement. In a world of laissez-faire or in a first-best setting, there would be no such trend. However, when first-best instruments are not available, because health and productivity are not observable, the optimal social insurance policy may imply a distortion on the retirement decision. The main point we make is that while there is no doubt that retirement systems induce an excessive bias towards early in many countries, a complete elimination of this bias (i.e., a switch to an actuarially fair system) is not the right answer. This is so and for two reasons. First, some distortions are second-best optimal. This is the normative argument. Second, and on the positive side, the elimination of the bias might be problematic from a political perspective. Depending on the political process, it may either not be feasible or alternatively it may tend to undermine the political support for the pension system itself.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5542

Bibliographic Reference

Cremer, H, Lozachmeur, J and Pestieau, P. 2006. 'Social Security and Retirement Decision: A Positive and Normative Approach'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5542