Choosing the Legal Retirement Age in Presence of Unemployment

Georges Casamatta () and Caroline De Paoli

No 6263, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age and nep-pbe
Date: 2007-04
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