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

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. (ERRATUM Vol. 49, Issue 4, 1539)
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Jean-Olivier Hairault, François Langot, Thepthida Sopraseuth. Quantifying the Laffer Curve on the Continued Activity Tax in a Dynastic Framework. International Economic Review, Wiley, 2008, 49 (3), pp.755-797. ⟨10.1111/j.1468-2354.2008.00497.x⟩. ⟨halshs-00754273⟩

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