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, because ot the interaction between age-related penalties and the minimun pension. Both findings perfectly accommodate the retirement hazard of medium and low earners respectively. In contrast, high earners (those that have their contributions capped) despite having strong incentives to retire at the Early Retirement Age, do not 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 InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we013604.
Date of creation: Apr 2001
Date of revision:
Other versions of this item:
- Sergi Jiménez-Martín & Alfonso R. Sánchez Martín, 2004. "The effect of pension rules on retirement monetary incentives with an application to pension reforms in Spain," Hacienda Pública Española, IEF, vol. 169(2), pages 35-66, June.
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H5 - Public Economics - - National Government Expenditures and Related Policies
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