Ageing and Unused Capacity in Europe: Is There an Early Retirement Trap?

46 Pages Posted: 30 Jun 2009

See all articles by Viola Angelini

Viola Angelini

University of Groningen - Faculty of Economics and Business; Netspar

Agar Brugiavini

Ca Foscari University of Venice - Dipartimento di Economia

Guglielmo Weber

University of Padova - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for Fiscal Studies (IFS)

Abstract

We address the issue of how early retirement may interact with limited use of financial markets in producing financial hardship later in life, when some risks (such as long-term care) are not insured. We argue that the presence of financially attractive early retirement schemes in a world of imperfect financial and insurance markets can lead to an 'early retirement trap'. Indeed, Europe witnesses many (early) retired individuals in financial distress. In our analysis we use data on 10 European countries, which differ in their pension and welfare systems, in prevailing retirement age and in households' access to financial markets. We find evidence that an early retirement trap exists, particularly in some Southern and Central European countries: people who retired early in life are more likely to be in financial hardship in the long run. Our analysis implies that governments should stop making early retirement attractive, let retirees go back to work, improve access to financial markets and make sure long-term care problems are adequately insured.

Suggested Citation

Angelini, Viola and Brugiavini, Agar and Weber, Guglielmo, Ageing and Unused Capacity in Europe: Is There an Early Retirement Trap?. Economic Policy, Vol. 24, Issue 59, pp. 463-508, July 2009, Available at SSRN: https://ssrn.com/abstract=1425811 or http://dx.doi.org/10.1111/j.1468-0327.2009.00227.x

Viola Angelini

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Agar Brugiavini

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Guglielmo Weber

University of Padova - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 827 4271 (Phone)
+39 049 827 4221 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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