An Evaluation of the Life-Cycle Effects of Minimum Pensions on Retirement Behavior

UPF Working Paper No. 715

40 Pages Posted: 11 Jul 2004

See all articles by Sergi Jimenez-Martin

Sergi Jimenez-Martin

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Alfonso Sanchez

Imperial College Business School

Date Written: October 2003

Abstract

In this paper we explore the distortions that minimum pensions generate on retirement behavior. This is done with the help of a stylized life-cycle model, which provides a very convenient analytical characterization of the optimality conditions, and a very easy qualitative exploration of the impact of pension rules on optimal behavior. In this context we show that a standard life cycle model, that does not consider minimum pensions, is unable to fit the data. This anomaly is resolved once the minimum pension is taken into account. In order to quantitatively assess the contribution of minimum pensions to early retirement patterns we, firstly, recover the preference parameters through a structural econometric estimation; and, secondly, we simulate the change in the retirement distribution induced by the minimum pension. We found that 3 out of 4 workers retire before 65 under the minimum pension, while this ratio is 3 in 5 without it.

Keywords: Retirement, life cycle model, minimum pension, structural estimation

JEL Classification: D91, J26, H22

Suggested Citation

Jimenez-Martin, Sergi and Sanchez, Alfonso, An Evaluation of the Life-Cycle Effects of Minimum Pensions on Retirement Behavior (October 2003). UPF Working Paper No. 715. Available at SSRN: https://ssrn.com/abstract=563211 or http://dx.doi.org/10.2139/ssrn.563211

Sergi Jimenez-Martin (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 67 (Phone)
(34) 93 542 17 46 (Fax)

Alfonso Sanchez

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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