The effect of pension rules on retirement monetary incentives with an application to pension reforms in Spain
AbstractIn this work we theoretically disentangle the effects of pension provisions on a variety of financial incentives to retirement, trying to reconcile them with some key Spanish retirement patterns. We find that the «average» individual, who is never affected by any cap of contributions or benefits, has weak incentives to retire early and strong incentives to retire at the normal retirement age. Alternatively, individuals at the bottom of the wage distribution have strong incentives to retire as early as possible, as a result of the interaction between age-related penalties and the minimum pension. Both findings perfectly accommodate the retirement hazard of medium and low earners respectively. In contrast, high earners (those that have their contributions capped) do not retire early despite having strong incentives to do so. This is because, for those workers, financial incentives are not a good proxy for the marginal utility from working. Finally, we analyze the reasons behind the failure of the 1997 reform in improving the sustainability of the Spanish public pension system.
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Bibliographic InfoArticle provided by IEF in its journal Hacienda Pública Española/Revista de Economía Pública.
Volume (Year): 169 (2004)
Issue (Month): 2 (June)
retirement; Social Security; Monetary incentives; Pension Reform; Spain;
Other versions of this item:
- Sergi Jiménez-Martín & Alfonso R. Sánchez, 2001. "The Effect Of Pension Rules On Retirement Monetary Incentives With An Application To Pension Reforms In Spain," Economics Working Papers we013604, Universidad Carlos III, Departamento de Economía.
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H5 - Public Economics - - National Government Expenditures and Related Policies
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