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Reforming the retirement scheme: Flexible retirement vs. Legal retirement age

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Author Info
Juan A. Lacomba () (Department of Economic Theory and Economic History, University of Granada.)
Francisco M. Lagos () (Department of Economic Theory and Economic History, University of Granada.)

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Abstract

We compare a Social Security system where people can retire at the age of their own choice with one in which there is a legal retirement age elected through a majority voting process. We analyze how incentives on retirement decisions change depending on the retirement rules. We show that individuals prefer a legal retirement age higher than that they would choose in the flexible scheme since in this scheme they ignore the impact of their decisions on the Social Security budget constraint. In spite of that, we show that when the legal retirement age significantly limits the retirement age of high-wage workers, a flexible scheme would improve the financing of the pension system. Finally, we show that even when pension benefits are higher with a legal retirement age, a flexible system might be implemented since it would be preferred by a majority of the population composed by low- and high-wage workers.

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File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers09_01.pdf
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Publisher Info
Paper provided by Department of Economic Theory and Economic History of the University of Granada. in its series ThE Papers with number 09/01.

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Length: 19 pages
Date of creation: 03 Jan 2009
Date of revision:
Handle: RePEc:gra:wpaper:09/01

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Related research
Keywords: Social security; Flexible retirement; Legal retirement age.;

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Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
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  3. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "The Political Economy of Social Security," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Cremer, Helmuth & Pestieau, Pierre, 2002. "The Double Dividend of Postponing Retirement," IDEI Working Papers 144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003. [Downloadable!]
    Other versions:
  5. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 505-29, August. [Downloadable!] (restricted)
  6. John B. Burbidge & A. Leslie Robb, 1980. "Pensions and Retirement Behaviour," Canadian Journal of Economics, Canadian Economics Association, vol. 13(3), pages 421-37, August. [Downloadable!] (restricted)
  7. Juan Lacomba & Francisco Lagos, 2006. "Population aging and legal retirement age," Journal of Population Economics, Springer, vol. 19(3), pages 507-519, July. [Downloadable!] (restricted)
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  8. Juan Antonio Lacomba & Francisco Miguel Lagos, 2005. "Political Election on Legal Retirement Age," ThE Papers 05/10, Department of Economic Theory and Economic History of the University of Granada.. [Downloadable!]
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  9. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA. [Downloadable!]
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  10. András Simonovits, 2004. "Designing Benefit Rules for Flexible Retirement with or without Redistribution," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  11. Sheshinski, Eytan, 1978. "A model of social security and retirement decisions," Journal of Public Economics, Elsevier, vol. 10(3), pages 337-360, December. [Downloadable!] (restricted)
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