QUANTIFYING THE LAFFER CURVE ON THE CONTINUED ACTIVITY TAX IN A DYNASTIC FRAMEWORK* |
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| Authors: | Jean‐Olivier Hairault François Langot Thepthida Sopraseuth |
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| Institution: | 1. Paris School of Economics (PSE), University of Paris 1, and IZA, France;2. University of Maine, U.S.A. GAINS‐TEPP, PSE, and IZA, France;3. University of Evry, EPEE‐TEPP, PSE, France;4. The authors acknowledge financial support from the Commissariat Général au Plan. We benefited from fruitful discussions with L. Caussat, P. Y. Hénin, T. Japelli, M. Juillard, M. Pagano, P. Pestieau, B. Sédillot, E. Walraet, and T. Weitzenblum. We thank anonymous referees for helpful comments as well as seminar participants at the EEA Congress (Stockholm, 2003), ESEM (Madrid, 2004) the Society for Computational Economics meeting (Seattle, 2003), the CSEF (Naples, 2003), the SED meeting (Paris, 2003), the workshop on intergenerational transfers (Paris, 2003), the Association Fran?aise des Sciences Economiques (Paris, 2003), the Scientific Workshop of the Caisse des Dép?ts et Consignations (Bordeaux, 2003), T2M (Orléans, 2004), Fourgeaud seminar (Paris, 2003), and Society of Labor Economics?‐?European Association of Labor Economics (San Francisco, 2005). Errors and omissions are ours. Please address correspondence to: Thepthida Sopraseuth, Department of Economics, EPEE ‐ Universitye d'Evry, 4, Bd Francois Mitterand, 91025 Evry Cedex, France. Phone: +33 1 69 47 70 46. E‐mail: . |
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| 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. |
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