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The Effects of Longevity and Distortions on Education and Retirement

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  • Pedro Cavalcanti Ferreira

    (Fundacao Getulio Vargas)

  • Samuel de Abreu Pessoa

    (Fundacao Getulio Vargas)

Abstract

This article studies the impact of longevity and taxation on life-cycle decisions and long run income. Individuals allocate optimally their total lifetime between education, working and retirement. They also decide at each moment how much to save or consume out of their income, and, after entering the labor market, how to divide their time between labor and leisure. The model incorporates experience-earnings profiles and return to education function that follows evidence from the labor literature. In this setup increases in longevity raises the investment in education - time in school - and retirement. The model is calibrated to the U.S. and is able to reproduce observed schooling trends of the last century. It also reproduces the increase in retirement, as the evidence shows. Simulations show that a country equal to the U.S. but with 20% smaller longevity will be 25% poorer, mostly because of the impact of life expectancy on human capital formation and retirement. In this economy labor taxes has a strong impact on the per capita income, as it decreases labor effort, time at school and retirement age, in addition to the general equilibrium impact over physical capital. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2007.01.003
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 10 (2007)
Issue (Month): 3 (July)
Pages: 472-493

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Handle: RePEc:red:issued:05-49

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Related research

Keywords: Life expectancy; Human capital; Retirement; Long run income;

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References

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Citations

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Cited by:
  1. Cysne, Rubens Penha, 2006. "Income Inequality in a Job-Search Model With Heterogeneous Discount Factors (Revised Version, Forthcoming 2006, Revista Economia)," Economics Working Papers (Ensaios Economicos da EPGE) 611, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Aloisio Araujo & Mario Pascoa & Juan Pablo Torres-Martinez, 2005. "Bubbles, collateral and monetary equilibrium," Textos para discussão 513, Department of Economics PUC-Rio (Brazil).
  3. Cysne, Rubens Penha, 2006. "An Intra-Household Approach to the Welfare Costs of Inflation (Revised Version, Forthcoming 2006, Estudos Econômicos)," Economics Working Papers (Ensaios Economicos da EPGE) 612, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Pedro Cavalcanti Ferreira & Marcelo Rodrigues dos Santos, 2013. "The Effect of Social Security, Health, Demography and Technology on Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 350-370, April.
  5. Ferreira, Pedro Cavalcanti Gomes & Santos, Marcelo Rodrigues dos, 2008. "The Effect of Social Security, Demography and Technology on Retirement," Economics Working Papers (Ensaios Economicos da EPGE) 683, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Barbosa, Fernando de Holanda, 2005. "The Contagion Effect of Public Debt on Monetary Policy: The Brazilian Experience," Economics Working Papers (Ensaios Economicos da EPGE) 591, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  7. Flôres Junior, Renato Galvão & Watanuki, Masakazu, 2006. "Integration Options for Mercosul - An Investigation Using the AMIDA Model," Economics Working Papers (Ensaios Economicos da EPGE) 610, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  8. Daishin Yasui, 2012. "Adult Longevity and Growth Takeoff," Discussion Papers 1218, Graduate School of Economics, Kobe University.
  9. Rosa Aísa & Fernando Pueyo & Marcos Sanso, 2012. "Life expectancy and labor supply of the elderly," Journal of Population Economics, Springer, vol. 25(2), pages 545-568, January.
  10. R. Schoonackers & F. Heylen, 2011. "Fiscal Policy and TFP in the OECD: A Non-Stationary Panel Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/701, Ghent University, Faculty of Economics and Business Administration.
  11. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2005. "Special Interests and Political Business Cycles," Economics Working Papers (Ensaios Economicos da EPGE) 597, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  12. Mizuno, Masakatsu & Yakita, Akira, 2013. "Elderly labor supply and fertility decisions in aging-population economies," Economics Letters, Elsevier, vol. 121(3), pages 395-399.

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