Working Paper: CEPR ID: DP4706
Authors: Georges Casamatta; Helmuth Cremer; Pierre Pestieau
Abstract: In many countries elderly workers are subject to a double distortion when they consider prolonging their activity: the payroll tax and a reduction in their pension rights. It is often argued that such a double burden would not be socially desirable. We consider a setting where it would be rejected by both a utilitarian and a Rawlsian social planner. Furthermore, each individual would also reject it as a citizen candidate. We show that the double burden may nevertheless be (second-best) Pareto efficient and can be supported by a particular structure of social weights biased towards the more productive workers.
Keywords: implicit taxation; pensions; retirement age
JEL Codes: H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| double burden (J12) | decision to prolong activity among elderly workers (J26) |
| double burden (J12) | socially undesirable according to utilitarian and Rawlsian perspectives (D63) |
| double burden (with bias towards productive workers) (J79) | Pareto efficient (D61) |
| implicit tax on continued activity (H29) | political compromise favoring productivity (P26) |
| political compromise favoring productivity (P26) | acceptance of the double burden (J12) |