DP4706 Is There a Political Support for the Double Burden on Prolonged Activity?

Author(s): Georges Casamatta , Helmuth Cremer , Pierre Pestieau

Publication Date: October 2004

Keyword(s): pensions , implicit taxation , retirement age

JEL(s): H55

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP4706.asp

In many countries elderly workers are subject to a double distortion when they consider prolonging their activity: the payroll tax and a reduction in their pension rights. It is often argued that such a double burden would not be socially desirable. We consider a setting where it would be rejected by both a utilitarian and a Rawlsian social planner. Furthermore, each individual would also reject it as a citizen candidate. We show that the double burden may nevertheless be (second-best) Pareto efficient and can be supported by a particular structure of social weights biased towards the more productive workers.