We study the effects of demographic shocks and changes in the pension system on the macroeconomic performance of an advanced small open economy. An overlapping-generations model is constructed which includes a realistic description of the mortality process. Individual agents choose their optimal retirement age, taking into account the time- and age profiles of wages, taxes, and the public pension system. The early retirement provision in most pension systems acts as a trap, inducing most workers to retire well before the normal retirement age. Simulations show that pension reform must be drastic for it to have any effects on the retirement behaviour of workers.
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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1974.
Find related papers by JEL classification: D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
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Lindbeck, Assar & Persson, Mats, 2002.
"The Gains from Pension Reform,"
Seminar Papers
712, Stockholm University, Institute for International Economic Studies.
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