Working Paper: NBER ID: w9455
Authors: Michael Baker; Jonathan Gruber; Kevin Milligan
Abstract: We explore the fiscal implications of reforms to the Canadian retirement income system by decomposing the fiscal effect of reforms into two components. The mechanical effect captures the change in the government's budget assuming no behavioral response to the reform. The second component is the fiscal implication of the behavioral effect, which captures the influence of any induced changes in elderly labor supply on government budgets. We find that the behavioral response can account for up to half of the total impact of reform on government budgets. The behavioral response affects government budgets not only in the retirement income system but also through increased income, payroll, and consumption tax revenue on any induced labor market earnings among the elderly. We show that fully accounting for the behavioral response to reforms can change the cost estimates and distributive impact of retirement income reforms.
Keywords: income security; retirement reform; Canada
JEL Codes: H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in the age of eligibility for retirement benefits by three years (H55) | Improvement in the government's fiscal position (H69) |
| Reduction in early retirement (J26) | Lower program expenditures (H53) |
| Increase in the age of eligibility for retirement benefits by three years (H55) | Reduction in early retirement (J26) |
| Shift to a common earnings-related benefit system (H55) | Raise net program expenditures (H59) |
| Behavioral response to reforms (E70) | Alters cost estimates and distributive impacts of retirement income reforms (J26) |