Social Security and Retirement Decision: A Positive and Normative Approach
University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
affiliation not provided to SSRN
University of Liege - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Journal of Economic Surveys, Vol. 22, Issue 2, pp. 213-233, April 2008
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 retirement in many countries, a complete elimination of this bias (i.e. a switch to an actuarially fair system) is not the right answer 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, either it may not be feasible or alternatively it may tend to undermine the political support for the pension system itself.
Number of Pages in PDF File: 21Accepted Paper Series
Date posted: March 12, 2008
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