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The Importance of Financial Incentives on Retirement Choices

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  • Michele Belloni

    ()
    (CeRP, Collegio Carlo Alberto)

  • Rob Alessie

    ()
    (Utrecht University, and Netspar)

Abstract

This study exploits a new dataset in order to quantify the effect of financial incentives on retirement choices. This dataset contains for the first time in Italy information on seniority. In accordance with the general finding in Gruber and Wise (2004), we find that financial incentives have an effect on retirement. The effect goes in the expected direction; when employees become eligible for pension benefits the change in financial incentives they experience is so high that their retirement probability increases in a sizable way. We also find that the procedure to impute seniority used in previous studies leads to a sizable measurement error. Due to this measurement error, the key parameters of the model are inconsistently estimated. Our sensitivity analysis suggests that the lack of appropriate information on seniority is an important reason for the unclear evidence so far obtained in retirement studies for Italy.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-052/3.

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Date of creation: 22 May 2008
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Handle: RePEc:dgr:uvatin:20080052

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Keywords: retirement; social security wealth; seniority; unobserved heterogeneity;

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  1. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  2. Angus Deaton & Christina H. Paxson, 1993. "Saving, Growth, and Aging in Taiwan," NBER Working Papers 4330, National Bureau of Economic Research, Inc.
  3. Didier Blanchet & Louis-Paul Pele, 1999. "Social Security and Retirement in France," NBER Chapters, in: Social Security and Retirement around the World, pages 101-133 National Bureau of Economic Research, Inc.
  4. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters, in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
  5. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, octubre-d.
  6. Randall K. Filer & Marjorie Honig, 2005. "Endogenous Pensions and Retirement Behavior," Economics Working Paper Archive at Hunter College 410, Hunter College Department of Economics.
  7. Peter Diamond & Jonathan Gruber, 1999. "Social Security and Retirement in the United States," NBER Chapters, in: Social Security and Retirement around the World, pages 437-473 National Bureau of Economic Research, Inc.
  8. Agar Brugiavini, 1997. "Social Security and Retirement in Italy," NBER Working Papers 6155, National Bureau of Economic Research, Inc.
  9. Raffaele Miniaci, 1998. "Microeconometric Analysis of the Retirement Decision: Italy," OECD Economics Department Working Papers 205, OECD Publishing.
  10. Courtney Coile & Jonathan Gruber, 2000. "Social Security Incentives for Retirement," NBER Working Papers 7651, National Bureau of Economic Research, Inc.
  11. Agar Brugiavini & Franco Peracchi, 2003. "Social Security Wealth and Retirement Decisions in Italy," LABOUR, CEIS, vol. 17(SpecialIs), pages 79-114, 08.
  12. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-80, September.
  13. Hans Bloemen, 2008. "Private Wealth and Job Exit at Older Age: a Random Effects Model," Tinbergen Institute Discussion Papers 08-025/3, Tinbergen Institute.
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