The Evolution of Retirement

34 Pages Posted: 13 May 2005

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)

Paola Profeta

Bocconi University - Department of Policy Analysis and Public Management; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2005

Abstract

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 statistics 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: D72, H53, H55

Suggested Citation

Conde-Ruiz, J. Ignacio and Galasso, Vincenzo and Profeta, Paola, The Evolution of Retirement (January 2005). CEPR Discussion Paper No. 4863. Available at SSRN: https://ssrn.com/abstract=722442

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

Paola Profeta

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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