The Standard Deviation of Life-Length, Retirement Incentives, and Optimal Pension Design
AbstractIn this paper, we consider how the retirement age as well as a tax financed pension system ought to respond to a change in the standard deviation of the length of life. In a first best framework, where a benevolent government exercises perfect control over the individuals’ labor supply and retirement-decisions, the results show that a decrease in the standard deviation of life-length leads to an increase in the optimal retirement age and vice versa, if the preferences for “the number of years spent in retirement” are characterized by constant or decreasing absolute risk aversion. A similar result follows in a second best setting, where the government raises revenue via a proportional tax (or pension fee) to finance a lump-sum benefit per year spent in retirement. We consider two versions of this model, one with a mandatory retirement age decided upon by the government and the other where the retirement age is a private decision-variable.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 818.
Length: 24 pages
Date of creation: 04 Oct 2010
Date of revision:
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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
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Uncertain lifetime; retirement; pension system;
Other versions of this item:
- Thomas Aronsson & Sören Blomquist, 2010. "The Standard Deviation of Life-Length, Retirement Incentives, and Optimal Pension Design," CESifo Working Paper Series 3201, CESifo Group Munich.
- Aronsson, Thomas & Blomquist, Sören, 2010. "The Standard Deviation of Life-Length, Retirement Incentives, and Optimal Pension Design," Working Paper Series, Center for Fiscal Studies 2010:11, Uppsala University, Department of Economics.
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2010-10-16 (Economics of Ageing)
- NEP-ALL-2010-10-16 (All new papers)
- NEP-LAB-2010-10-16 (Labour Economics)
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