Should Old-age Benefits Be Earnings-tested

We study the welfare effects of earnings testing flat-rate old-age benefits in a quantitative overlapping generations model with idiosyncratic labor income risk. In our model economy, even a moderate earnings testing reduces individualsŽ expected lifetime utility. Moreover, it also lowers the realized lifetime utilities of those at the bottom of the lifetime utility distribution.

JEL: H55, J26, C68
Publication year: 2006
Pages: 28
Price: 10€
Language: English
Discussion Papers no. 1062

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