Retirement and Social Security in a Probabilistic Voting Model

Why are social security transfers associated with retirement rules? This paper focuses on the political interactions between retirement and social security. Using a probabilistic voting approach, it analyzes why old people are induced to retire in order to receive pension transfers from the young. A crucial hypothesis is that leisure in old age represents a “merit good,” which is positively valued by all agents in the society, young and old. Thus, the politicians choose to tax the labor income of the old, to induce them to retire. Retirement increases the level of ideological homogeneity of the old. In fact, once retired, the elderly are more “single-minded,” since they only care about redistributive issues, such as pensions. This increase in their political power allows them to win the political game and to receive a positive transfer from the young (social security). Copyright Kluwer Academic Publishers 2002