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Incentives to retire later a solution to the social security crisis?

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  • BREYER, FRIEDRICH
  • KIFMANN, MATHIAS

Abstract

As one possible solution to the well-known financing crisis of unfunded social security systems, an increase in the retirement age is a popular option. To induce workers to retire later, it has been proposed to strengthen the link between retirement age and benefit level. The present paper is devoted to analyzing the long-run financial implications of such a reform. We show that with actuarial adjustments the long-run contribution rate is an increasing function of the retirement age chosen by workers. Moreover, the implicit tax paid to the pension system by a participant can increase in the long run if the retirement age rises in response to a steep adjustment rule. In this sense, the proposed cure may worsen the disease. Finally, we show how the negative effects can be avoided by forming a capital stock from the additional revenues due to later retirement.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 1 (2002)
Issue (Month): 02 (July)
Pages: 111-130

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Handle: RePEc:cup:jpenef:v:1:y:2002:i:02:p:111-130_00

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References

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  1. Mathias Kifman & Dirk Schindler, 2000. "Smoothing the Implicit Tax Rate in a Pay-as-you-go Pension System," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(3), pages 261-, May.
  2. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  3. Breyer, Friedrich, 2001. "Why Funding is not a Solution to the "Social Security Crisis"," IZA Discussion Papers 328, Institute for the Study of Labor (IZA).
  4. Gruber, Jonathan & Wise, David, 1998. "Social Security and Retirement: An International Comparison," American Economic Review, American Economic Association, vol. 88(2), pages 158-63, May.
  5. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  6. Hassler, John & Lindbeck, Assar, 1997. "Optimal Actuarial Fairness in Pension Systems - a Note," Seminar Papers 609, Stockholm University, Institute for International Economic Studies.
  7. Kapteyn, Arie & de Vos, Klaas, 1998. "Social Security and Labor-Force Participation in the Netherlands," American Economic Review, American Economic Association, vol. 88(2), pages 164-67, May.
  8. Blundell, Richard & Johnson, Paul, 1998. "Pensions and Labor-Market Participation in the United Kingdom," American Economic Review, American Economic Association, vol. 88(2), pages 168-72, May.
  9. Borsch-Supan, Axel & Schnabel, Reinhold, 1998. "Social Security and Declining Labor-Force Participation in Germany," American Economic Review, American Economic Association, vol. 88(2), pages 173-78, May.
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Citations

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Cited by:
  1. Friedrich Breyer & Stefan Hupfeld, 2007. "On the Fairness of Early Retirement Provisions," CESifo Working Paper Series 2078, CESifo Group Munich.
  2. Walter H. Fisher & Christian Keuschnigg, 2007. "Pension Reform and Labor Market Incentives," CESifo Working Paper Series 2057, CESifo Group Munich.
  3. Kuhn, Michael & Wrzaczek, Stefan & Prskawetz, Alexia & Feichtinger, Gustav, 2011. "Optimal Choice of Health and Retirement in a Life-Cycle Model," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48681, Verein für Socialpolitik / German Economic Association.
  4. Martin Werding, 2007. "Versicherungsmathematisch korrekte Rentenabschläge für die gesetzliche Rentenversicherung," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(16), pages 19-32, 08.
  5. Niklas Potrafke, 2011. "Unemployment, Human Capital Depreciation and Pension Benefits: An Empirical Evaluation of German Data," Working Paper Series of the Department of Economics, University of Konstanz 2011-05, Department of Economics, University of Konstanz.
  6. Breyer, Friedrich & Franz, Wolfgang & Homburg, Stefan & Schnabel, Reinhold & Wille, Eberhard, 2004. "Reform der sozialen Sicherung," EconStor Books, ZBW - German National Library of Economics, number 92399.
  7. Arnds, Pascal & Bonin, Holger, 2002. "Frühverrentung in Deutschland: Ökonomische Anreize und institutionelle Strukturen," IZA Discussion Papers 666, Institute for the Study of Labor (IZA).
  8. Enrique Fatás & Juan A. Lacomba & Francisco M. Lagos & Ana I. Moro, 2008. "Experimental tests on consumption, savings and pensions," ThE Papers 08/14, Department of Economic Theory and Economic History of the University of Granada..
  9. Enrique Fatás & Juan Lacomba & Francisco Lagos & Ana Moro-Egido, 2013. "An experimental test on dynamic consumption and lump-sum pensions," SERIEs, Spanish Economic Association, vol. 4(4), pages 393-413, November.
  10. Axel Börsch-Supan & Barbara Berkel, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series 04062, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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