Choosing the Legal Retirement Age in Presence of Unemployment

Casamatta, Georges; De Paoli, Caroline

doi:10.2139/ssrn.977907

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Choosing the Legal Retirement Age in Presence of Unemployment

25 Pages Posted: 5 Apr 2007

See all articles by Georges Casamatta

Georges Casamatta

Toulouse School of Economics (GREMAQ-CNRS); Centre for Economic Policy Research (CEPR)

Caroline De Paoli

University of Toulouse 1 - Manufacture des Tabacs; École Normale Supérieure (ENS) - Laboratoire d'Economie Theorique et Appliquee (LEA)

There are 2 versions of this paper

Date Written: March 31, 2007

Abstract

The aim of this paper is to better understand the impact of unemployment on the design of Pay-As-You-Go pension systems, in the context of population aging.

We consider a model in which people differ according to age and face in every period a given probability of becoming unemployed.

We first determine the optimal pension system, which consists in a payroll tax rate, a pension benefit level and a retirement age and study its comparative statistics with respect to a change of the unemployment rate and the length of life.

We then characterize the issue-by-issue voting equilibrium and compare it to the optimal pension scheme. It is shown that the median voter in general chooses a retirement age lower than the optimal one as well as a higher payroll tax rate.

Suggested Citation: Suggested Citation

Casamatta, Georges and De Paoli, Caroline and De Paoli, Caroline, Choosing the Legal Retirement Age in Presence of Unemployment (March 31, 2007). Available at SSRN: https://ssrn.com/abstract=977907 or http://dx.doi.org/10.2139/ssrn.977907