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The Macroeconomic of Early Retirement

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  • J. Ignacio Conde-Ruiz
  • Vincenzo Galasso

Abstract

Early retirement represents a persistent policy response to the appearance of a mass of redundant elderly workers, not entitled to a pension transfer. This distortionary policy reduces the incentive to accumulate human capital, and thus decreases economic growth. Why was it adopted? We suggest that alternative non-persistent policies, which do not introduce long-term distortions, but impose a larger cost on the current young generation of workers, were blocked by the political opposition of the high income workers, who did not plan to retire early, butsought to reduce the current tax burden, and of the middle income workers, who expect to retire early. What is the future of early retirement? We argue that, as the process of population aging reduces then performance of the PAYG system, the number of early retirees will diminish until, eventually, the political support in favor of this provision will disappear.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 194.

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Handle: RePEc:igi:igierp:194

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