Choosing the legal retirement age in presence of unemployment

Georges Casamatta and Caroline de Paoli
Additional contact information
Georges Casamatta: Toulouse School of Economics, GREMAQ
Caroline de Paoli: ISG and Paris School of Economics

No 2012011, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: A general conclusion of the theoretical literature on pensions is, confronted to an increased longevity, to encourage continued activity. This literature however assumes a perfect labour market. The central question addressed in this article is whether it is still desirable to increase the retirement age when individuals face the risk of being unemployed. In this purpose, we study the design of the Pay-As-You-Go pension system, focusing on the determination of the retirement age, in a model where people differ according to age only 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. Our main findings are the following. First, it is optimal to postpone retirement when life expectancy increases. Second, when unemployment benefits are low the optimal retirement age may decrease with the unemployment rate. 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)
Pages: 21
Date: 2012-03-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.jstor.org/stable/41714304 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2012011

Access Statistics for this paper

More papers in Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Sebastien SCHILLINGS ().