Quantifying the Laffer Curve on the Continued Activity Tax in a Dynastic Framework

43 Pages Posted: 25 Jul 2008

See all articles by Jean-Olivier Hairault

Jean-Olivier Hairault

Université Paris I Pantheon-Sorbonne; IZA Institute of Labor Economics

François Langot

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP); Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS); IZA Institute of Labor Economics

Thepthida Sopraseuth

Université du Maine; University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Abstract

It is argued that the tax on continued activity should be removed by implementing actuarially fair schemes. However, these schemes cannot fund the expected Social Security (SS) deficit. This article proposes to give individuals a fraction of the actuarially fair incentives in the case of postponed retirement. SS faces a trade-off between giving enough incentives to make individuals delay retirement and giving little increase in pensions in order to help finance its expected deficit. This trade-off is captured by a Laffer curve. Finally, when the SS system aims to maximize welfare, the optimal tax on postponed retirement is still strictly positive.

Suggested Citation

Hairault, Jean-Olivier and Langot, Francois and Sopraseuth, Thepthida, Quantifying the Laffer Curve on the Continued Activity Tax in a Dynastic Framework. International Economic Review, Vol. 49, Issue 3, pp. 755-797, August 2008. Available at SSRN: https://ssrn.com/abstract=1175376 or http://dx.doi.org/10.1111/j.1468-2354.2008.00497.x

Jean-Olivier Hairault (Contact Author)

Université Paris I Pantheon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Francois Langot

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP) ( email )

Ecole Normale Superieure
48 boulevard Jourdan
75014 Paris
France

Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS) ( email )

72085 Le Mans Cedex 9
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Thepthida Sopraseuth

Université du Maine ( email )

72085 Le Mans Cedex 9
France

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Ecole Normale Superieure
48 boulevard Jourdan
75014 Paris
France

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