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Quantifying the Laffer Curve on the Continued Activity Tax in a Dynastic Framework

Jean-Olivier Hairault, François Langot and Thepthida Sopraseuth
International Economic Review
Vol. 49, No. 3 (Aug., 2008), pp. 755-797
Stable URL: http://www.jstor.org/stable/20486819
Page Count: 43
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Quantifying the Laffer Curve on the Continued Activity Tax in a Dynastic Framework
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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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