DP4706 Is There a Political Support for the Double Burden on Prolonged Activity?

Author(s): Georges Casamatta, Helmuth Cremer, Pierre Pestieau
Publication Date: October 2004
Keyword(s): implicit taxation, pensions, retirement age
JEL(s): H55
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4706

In many countries elderly workers are subject to a double distortion when they consider prolonging their activity: the payroll tax and a reduction in their pension rights. It is often argued that such a double burden would not be socially desirable. We consider a setting where it would be rejected by both a utilitarian and a Rawlsian social planner. Furthermore, each individual would also reject it as a citizen candidate. We show that the double burden may nevertheless be (second-best) Pareto efficient and can be supported by a particular structure of social weights biased towards the more productive workers.