Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/75989
Authors: 
Cremer, Helmuth
Lozachmeur, Jean-Marie
Pestieau, Pierre
Year of Publication: 
2002
Series/Report no.: 
CESifo Working Paper 693
Abstract: 
It is often argued that implicit taxation on continued activity of elderly workers is responsible for the widely observed trend towards early retirement. In a world of laissez-faire or of first-best efficiency, there would be no such implicit taxation. The point of this paper is that when first-best redistributive instruments are not available, because some variables are not observable, the optimal policy does imply a distortion of the retirement decision. Consequently, the inducement of early retirement may be part of the optimal tax-transfer policy. We consider a model in which individuals differ in their productivity and their capacity to work long and choose both their weekly labor supply and their age of retirement. We characterize the optimal non linear tax-transfer that maximizes a utilitarian welfare function when weekly earnings and the length of active life are observable while individuals' productivity and health status are not observable.
Document Type: 
Working Paper

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