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Social security adjustments: a Laffer curve analysis

Author

Listed:
  • Jean-Olivier Hairault

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • François Langot

    (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

  • Thepthida Sopraseuth

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

Abstract

In France, the pattern of old age pension is characterized by a tax on continued activity, which distorts labour market participation towards a retirement age far below the one that would prevail in an optimal environment. This tax on continued activity would disappear with an actuarially fair system that links replacement rates to retirement age. However, by definition, actuarially fair schemes are unable to finance the expected Social Security deficit. Policy makers then face a dilemma between a high level of tax and the lengthening of working years. This trade off is captured by a Laffer curve. We first develop a 2 period model to determine the level of the tax that maximizes the Social Security surplus. We then present a calibrated model of the French economy in order to illustrate the relationship between the tax on continued activity, the actuarially fair scheme and the Laffer curve effect.

Suggested Citation

  • Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2005. "Social security adjustments: a Laffer curve analysis," Post-Print hal-02878038, HAL.
    • Handle: RePEc:hal:journl:hal-02878038
    DOI: 10.3917/redp.152.0241
    as

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