Early Retirement and Social Security: A Long-Term Perspective
32 Pages Posted: 11 Nov 2005
Date Written: October 2005
We provide a long-term perspective on the individual retirement behaviour and on the future of retirement. In a Markovian political economic theoretical framework, in which incentives to retire early are embedded, we derive a political equilibrium with positive social security contribution rates and early retirement. Aging has two opposite effects: it leads to lower taxes and fewer (early) retirees, while a poorer median voter will push for higher contributions. The model highlights the existence of crucial income effects: a decrease of the income of young people will induce them to postpone retirement and to vote for less social security.
Keywords: pensions, income effect, tax burden, politico-economic Markovian equilibrium
JEL Classification: H53, H55, D72
Suggested Citation: Suggested Citation