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Delaying Retirement in Spain

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Author Info

  • Javier Diaz-Gimenez

    (Universidad Carlos III de Madrid)

  • Julian Diaz-Saavedra

    (Universidad de Grenada)

Abstract

We study the reform of the Spanish public pension system in a multiperiod, general equilibrium, overlapping generations model economy populated by heterogeneous households. Our households differ in their place of birth, in their age, in their education and, endogenously, in their employment status, in their wealth, and in their pension entitlements. They receive a stochastic endowment of efficiency labor units each period. And they face a disability risk and a survival risk. They understand the link between the payroll taxes that they pay and the public pensions that they receive. And they decide how much to consume and to work, and when to retire from the labor force. We calibrate this economy to Spanish data, and we use it to study the consequences of delaying three years the statutory retirement ages in 2010. We find this reform is sufficient to solve the sustainability problems that plague the current Spanish public pension system. Our model economy predicts that under the current rules, the pension system fund will run out in 2028 and in the reformed economy it will last until 2050. We also find that it is moderately expansionary, and that it improves social welfare from the year 2015 onwards. We conclude that policymakers should seriously consider delaying the statutory retirement ages in Spain sometime in the near future. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2008.06.001
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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): 12 (2009)
Issue (Month): 1 (January)
Pages: 147-167

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Handle: RePEc:red:issued:06-8

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Related research

Keywords: Computable general equilibrium; Social security reform; Retirement;

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References

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  1. Michele Boldrin & Sergi Jimenez-Martin, 2007. "Evaluating Spanish Pension Expenditure under Alternative Reform Scenarios," NBER Chapters, in: Social Security Programs and Retirement around the World: Fiscal Implications of Reform, pages 351-412 National Bureau of Economic Research, Inc.
  2. Alan L. Gustman & Thomas L. Steinmeier, 1986. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
  3. Juan A. Rojas, . "Life-cycle Earnings Cohort Size Effects and Social Security. A Quantitative Exploration," Studies on the Spanish Economy 88, FEDEA.
  4. repec:att:wimass:9430 is not listed on IDEAS
  5. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD Publishing.
  6. Castañeda, A. & Díaz-Giménez, Javier & Ríos-Rull, J.V., . "Accounting for the U.S. Earnings and Wealth Inequality," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/4959, Universidad Carlos III de Madrid.
  7. Santiago Budria & Javier Díaz-Jiménez, 2005. "Economic Inequality in Spain: The European Union Household Panel Dataset," Labor and Demography 0505001, EconWPA.
  8. Sergi Jiménez-Martín & Alfonso R. Sánchez, 2003. "An evaluation of the life-cycle effects of minimum pensions on retirement behavior," Economics Working Papers 715, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2006.
  9. Carlos de Miguel & María Montero, . "Envejecimiento y sostenibilidad del sistema de pensiones," Studies on the Spanish Economy 190, FEDEA.
  10. Mariacristina De Nardi & Selahattin Imrohoglu & Thomas J. Sargent, 1998. "Projected U.S. demographics and social security," Working Paper Series WP-98-14, Federal Reserve Bank of Chicago.
  11. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
  12. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
  13. Sánchez Martín, Alfonso R., 2010. "Endogenous retirement and public pension system reform in Spain," Economic Modelling, Elsevier, vol. 27(1), pages 336-349, January.
  14. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
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  17. Conde-Ruiz, J.I. & Galasso, V., 2000. "Early Retirement," Economics Working Papers eco2000/24, European University Institute.
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Citations

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Cited by:
  1. Sánchez Martín, Alfonso R., . "Endogenous retirement and public pension system reform in Spain," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/249, Universidad Carlos III de Madrid.
  2. Ferreira, Pedro Cavalcanti & Santos, Marcelo Rodrigues dos, 2012. "The effect of social security, health, demography and technology on retirement," Economics Working Papers (Ensaios Economicos da EPGE) 727, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
  3. Manuel Kallweit, 2009. "Rentenreform und Rentenzugangsentscheidung – Eine numerische Gleichgewichtsanalyse," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(4), pages 426-449, August.
  4. Mario Izquierdo & Juan F. Jimeno & Juan A. Rojas, 2007. "On the aggregate effects of immigration in Spain," Banco de España Working Papers 0714, Banco de España.
  5. Clara I. Gonzalez & José Ignacio Conde Ruiz & Michele Boldrin, 2009. "Immigration and Social Security in Spain," Working Papers 2009-26, FEDEA.
  6. Miguel Sánchez Romero & Concepción Patxot & Elisenda Renteria & Guadalupe Souto, 2010. "From transfers to capital: analyzing the Spanish demand for wealth using NTA," MPIDR Working Papers WP-2010-029, Max Planck Institute for Demographic Research, Rostock, Germany.
  7. Javier Vázquez Grenno, 2009. "Spanish Pension System: Population Aging and Immigration Policy," Working Papers wpdea0902, Department of Applied Economics at Universitat Autonoma of Barcelona.
  8. Luca Marchiori & Olivier Pierrard & Henri R. Sneessens, 2011. "Demography, capital flows and unemployment," BCL working papers 69, Central Bank of Luxembourg.
  9. Clemente Polo Andrés & Raimundo Viejo Rubio, 2011. "Efectos de aumentar las pensiones no contributivas de jubilación y las pensiones con complemento a mínimo de jubilación y viudedad a las personas mayores en España," Hacienda Pública Española, IEF, vol. 196(1), pages 79-106, january.

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