The Macroeconomics of Early Retirement

42 Pages Posted: 26 Jun 2003

See all articles by J. Ignacio Conde-Ruiz

J. Ignacio Conde-Ruiz

Foundation for Applied Economic Research (FEDEA)

Vincenzo Galasso

University of Lugano; Centre for Economic Policy Research (CEPR)

Date Written: May 2003

Abstract

Early retirement represents a policy response to the appearance of a mass of redundant middle-aged workers, who were not entitled to a pension transfer in their old age. This policy is distortionary, since it reduces the incentive to accumulate human capital, hence decreasing economic growth: it shifts part of the tax burden on future generations. Why was it adopted? We suggest that alternative policies - which do not introduce long-term distortions, but impose a larger cost on the current young generation of workers - were blocked by the political opposition of a coalition of the extreme: high income workers, who did not plan to retire early, but sought to reduce the current tax burden, and low income workers, who expected to retire early and to benefit from the early retirement pension.

Keywords: Human capital accumulation, political sustainability, redistributive policies

JEL Classification: D72, H53, H55

Suggested Citation

Conde-Ruiz, J. Ignacio and Galasso, Vincenzo, The Macroeconomics of Early Retirement (May 2003). CEPR Discussion Paper No. 3896. Available at SSRN: https://ssrn.com/abstract=419501

J. Ignacio Conde-Ruiz

Foundation for Applied Economic Research (FEDEA) ( email )

Jorge Juan 46
Madrid, 28001
Spain
+34 91 435 9020 (Phone)
+34 91 577 9575 (Fax)

Vincenzo Galasso (Contact Author)

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, 6900
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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