Working Paper: CEPR ID: DP6263
Authors: Georges Casamatta; Caroline De Paoli
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 statics 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.
Keywords: Retirement Age; Unemployment
JEL Codes: H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment rate (J64) | retirement age (J26) |
| unemployment rate (J64) | pension benefits (H55) |
| unemployment rate (J64) | payroll tax rate (H29) |
| life expectancy (J17) | payroll tax rate (H29) |
| life expectancy (J17) | retirement age (J26) |
| life expectancy (J17) | pension benefits (H55) |
| median voter preferences (D79) | retirement age (J26) |
| median voter preferences (D79) | payroll tax rate (H29) |