Should Old-Age Benefits Be Earnings-Tested?

Määttänen, Niku; Poutvaara, Panu

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Should Old-Age Benefits Be Earnings-Tested?

IZA Discussion Paper No. 2616

29 Pages Posted: 8 Mar 2007 Last revised: 7 May 2025

See all articles by Niku Määttänen

Niku Määttänen

ETLA, Research Institute of the Finnish Economy

Panu Poutvaara

University of Helsinki - Department of Economics; Helsinki Center of Economic Research (HECER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

We study the welfare effects of earnings testing flat-rate old-age benefits in a quantitative overlapping generations model with idiosyncratic labor income risk. In our model economy, even a moderate earnings testing reduces individuals expected lifetime utility, whenever other taxes are taken into account. Moreover, it also lowers the realized lifetime utilities of those at the bottom of the lifetime utility distribution.

Keywords: means-testing, retirement, social security

JEL Classification: H55, J26, C68

Suggested Citation: Suggested Citation

Määttänen, Niku and Poutvaara, Panu, Should Old-Age Benefits Be Earnings-Tested?. IZA Discussion Paper No. 2616, Available at SSRN: https://ssrn.com/abstract=969412