The Evolution of Retirement
IGIER Working Paper No. 278
32 Pages Posted: 17 Jan 2005
Date Written: January 2005
We provide a long term perspective on the individual retirement behavior and on the future of early retirement. In a cross-country sample, we find that total pension spending depends positively on the degree of early retirement and on the share of elderly in the population, which increase the proportion of retirees, but has hardly any effect on the per-capita pension benefits. We show that in a Markovian political economic theoretical framework, in which incentives to retire early are embedded, a political equilibrium is characterized by an increasing sequence of social security contribution rates converging to a steady state and early retirement. Comparative statics suggest that aging and productivity slow-downs lead to higher taxes and more early retirement. However, when income effects are factored in, the model suggests that periods of stagnation - characterized by decreasing labor income - may lead middle aged individuals to postpone retirement.
Keywords: Pensions, lifetime income effect, tax burden, politico-economic Markovian equilibrium
JEL Classification: H53, H55, D72
Suggested Citation: Suggested Citation