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How should retirement policy adjust to the baby bust ?

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Author Info

  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Mahieu, Géraldine

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Rillaers, Alexandra

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

To cope with the observed drop in fertility, four policy options are generally considered : lowering pension benefits, increasing social security contributions, postponing retirement, and reducing public debt in advance. To assess the respective merits of these options, we analyze the optimal allocation of resources in an overlapping generations economy where old agents care about leisure. We characterize the decentralization of the optimum both when the retirement age is compulsory and when it results from a private decision. We conclude that the policy recommendation of postponing retirement is not robust to a wide class of preferences and technologies. In contrast, policies aimed at increasing capital through a reduction in public debt are more robust.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2001003.

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Length: 28
Date of creation: 01 Oct 2000
Date of revision:
Handle: RePEc:ctl:louvir:2001003

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Keywords: pensions; fertility; debt; first-best policy; decentralization;

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References

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  1. MICHEL, Philippe & PESTIEAU, Pierre, 1999. "Social security and early retirement in an overlapping-generations growth model," CORE Discussion Papers 1999051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers 1762, C.E.P.R. Discussion Papers.
  3. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-49, September.
  4. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
  5. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Pay-as-You-Go Social Security in a Changing Environment," Journal of Population Economics, Springer, vol. 4(4), pages 257-80, November.
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  7. Michel, Philippe, 1990. "Some Clarifications on the Transversality Condition," Econometrica, Econometric Society, vol. 58(3), pages 705-23, May.
  8. repec:cup:macdyn:v:1:y:1997:i:1:p:7-44 is not listed on IDEAS
  9. Meijdam, Lex & Verbon, Harrie A A, 1997. "Aging and Public Pensions in an Overlapping-Generations Model," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 29-42, January.
  10. Blanchet, Didier & Kessler, Denis, 1991. "Optimal Pension Funding with Demographic Instability and Endogenous Returns on Investment," Journal of Population Economics, Springer, vol. 4(2), pages 137-54, May.
  11. Alan J. Auerbach & Laurence J. Kotlikoff & Robert P. Hagemann & Giuseppe Nicoletti, 1989. "The Economic Dynamics of an Ageing Population: The Case of Four OECD Countries," OECD Economics Department Working Papers 62, OECD Publishing.
  12. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-83, June.
  13. Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer, vol. 15(4), pages 737-755.
  14. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 7-44, January.
  15. Laurence J. Kotlikoff, 1996. "Simulating the Privatization of Social Security in General Equilibrium," NBER Working Papers 5776, National Bureau of Economic Research, Inc.
  16. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  17. Peters, Wolfgang, 1991. "Public Pensions in Transition: An Optimal Policy Path," Journal of Population Economics, Springer, vol. 4(2), pages 155-75, May.
  18. Marchand, M. & Michel, P. & Pestieau, P., . "Intergenerational transfers in an endogenous growth model with fertility changes," CORE Discussion Papers RP -1229, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Deardorff, Alan V, 1976. "The Optimum Growth Rate for Population: Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 510-15, June.
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Citations

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Cited by:
  1. David de la Croix & Olivier Pierrard & Henri Sneessens, 2010. "Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010037, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Jørgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2009. "Labour supply and retirement policy in an overlapping generations model with stochastic fertility," Discussion Papers of Business and Economics 1/2009, Department of Business and Economics, University of Southern Denmark.
  3. PESTIEAU, Pierre & PONTHIERE, Grégory, 2011. "Optimal fertility along the lifecycle," CORE Discussion Papers 2011033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. David De La Croix & Pierre Pestieau & Grégory Ponthière, 2009. "How Powerful is Demography? The Serendipity Theorem Revisited," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00575095, HAL.
  5. Jorgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2010. "Labor supply and retirement policy in an overlapping generations model with stochastic fertility," Policy Research Working Paper Series 5382, The World Bank.
  6. Jensen, Svend E. Hougaard & Jorgensen, Ole Hagen, 2010. "Reform and backlash to reform : economic effects of ageing and retirement policy," Policy Research Working Paper Series 5470, The World Bank.
  7. Alessandro, SOMMACAL, 2004. "Pension systems and intragenerational redistribution when labor supply is endogenous," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  8. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 264-280.
  9. Batyra, Anna & de la Croix, David & Pierrard, Olivier & Sneessens, Henri R., 2013. "Declining bargaining power of workers and the rise of early retirement in Europe," GIAM Working Papers 13-6, Galatasaray University Economic Research Center.
  10. Jorgensen, Ole Hagen, 2011. "Macroeconomic and policy implications of population aging in Brazil," Policy Research Working Paper Series 5519, The World Bank.
  11. Andersen, Torben M, 2008. "Fiscal Sustainability and Demographics - Should We Save or Work More?," CEPR Discussion Papers 7044, C.E.P.R. Discussion Papers.
  12. repec:hal:wpaper:hal-00612609 is not listed on IDEAS

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