Pension Reform and Labor Market Incentives

CESifo Working Paper No. 2057

University of St. Gallen Economics Discussion Paper No. 2007-13

46 Pages Posted: 8 May 2007

See all articles by Walter H. Fisher

Walter H. Fisher

Institute for Advanced Studies (IHS) - Department of Economics & Finance

Christian Keuschnigg

University of St. Gallen – Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: July 2007

Abstract

This paper investigates how parametric reform in a pay-as-you-go pension system with a tax benefit link affects retirement incentives and work incentives of prime-age workers. We find that postponed retirement tends to harm incentives of prime-age workers in the presence of a tax benefit link, thereby creating a policy trade-off in stimulating aggregate labor supply. We show how several popular reform scenarios are geared either towards young or old workers, or, indeed, both groups under appropriate conditions. We also provide a sharp characterization of the excess burden of pension insurance and show how it depends on the behavioral supply elasticities on the extensive and intensive margins and the effective tax rates implicit in contribution rates.

Keywords: Pension reform, retirement, hours worked, tax benefit link, actuarial adjustment, excess burden

JEL Classification: H55, J26

Suggested Citation

Fisher, Walter H. and Keuschnigg, Christian, Pension Reform and Labor Market Incentives (July 2007). CESifo Working Paper No. 2057; University of St. Gallen Economics Discussion Paper No. 2007-13. Available at SSRN: https://ssrn.com/abstract=984168

Walter H. Fisher

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

Christian Keuschnigg (Contact Author)

University of St. Gallen – Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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