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The Effect Of Pension Rules On Retirement Monetary Incentives With An Application To Pension Reforms In Spain

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  • Sergi Jiménez-Martín

    ()

  • Alfonso R. Sánchez

    ()

Abstract

In 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 Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we013604.

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Date of creation: Apr 2001
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Handle: RePEc:cte:werepe:we013604

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  1. Andrew A. Samwick, 1998. "New Evidence on Pensions, Social Security, and the Timing of Retirement," NBER Working Papers 6534, National Bureau of Economic Research, Inc.
  2. Michele Boldrin & Sergi Jimenez-Martni & Franco Peracchi, 1997. "Social Security and Retirement in Spain," NBER Working Papers 6136, National Bureau of Economic Research, Inc.
  3. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  4. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198294979, October.
  5. Lazear, Edward P, 1976. "Age, Experience, and Wage Growth," American Economic Review, American Economic Association, American Economic Association, vol. 66(4), pages 548-58, September.
  6. Juan Carlos Conesa & Carlos Garriga, 2001. "Sistema Fiscal y Reforma de la Seguridad Social," Working Papers in Economics, Universitat de Barcelona. Espai de Recerca en Economia 67, Universitat de Barcelona. Espai de Recerca en Economia.
  7. Borsch-Supan, Axel, 2000. "Incentive effects of social security on labor force participation: evidence in Germany and across Europe," Journal of Public Economics, Elsevier, Elsevier, vol. 78(1-2), pages 25-49, October.
  8. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  9. : Michele Boldrin & : Sergi Jiménez-Martín & : Franco Peracchi, . "Micro-Modelling Of Retirement Behavior In Spain," Working Papers, Instituto de Estudios Fiscales 14-02 Classification-JEL , Instituto de Estudios Fiscales.
  10. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
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