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Longevity, Life-Cycle Behavior and Pension Reform

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Author Info

  • Haan, Peter

    ()
    (DIW Berlin)

  • Prowse, Victoria

    ()
    (Cornell University)

Abstract

How can public pension systems be reformed to ensure fiscal stability in the face of increasing life expectancy? To address this pressing open question in public finance, we estimate a life-cycle model in which the optimal employment, retirement and consumption decisions of forward-looking individuals depend, inter alia, on life expectancy and the design of the public pension system. We calculate that, in the case of Germany, the fiscal consequences of the 6.4 year increase in age 65 life expectancy anticipated to occur over the 40 years that separate the 1942 and 1982 birth cohorts can be offset by either an increase of 4.34 years in the full pensionable age or a cut of 37.7% in the per-year value of public pension benefits. Of these two distinct policy approaches to coping with the fiscal consequences of improving longevity, increasing the full pensionable age generates the largest responses in labor supply and retirement behavior.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5858.

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Length: 43 pages
Date of creation: Jul 2011
Date of revision:
Publication status: published in: Journal of Econometrics, 2014, 178(3), 582-601
Handle: RePEc:iza:izadps:dp5858

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Related research

Keywords: life expectancy; public pension reform; retirement; employment; life-cycle models; consumption; tax and transfer system;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Sustainable retirement pension reform?
    by Economic Logician in Economic Logic on 2011-08-15 14:42:00
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Cited by:
  1. de la Croix, David & Pierrard, Olivier & Sneessens, Henri R., 2013. "Aging and pensions in general equilibrium: Labor market imperfections matter," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 104-124.
  2. Victoria Prowse & Peter Haan, 2011. "Longevity, Life-cycle Behavior and Pension Reform," Economics Series Working Papers 556, University of Oxford, Department of Economics.
  3. Hugo Benitez-Silva & J. Ignacio Garcia-Perez & Sergi Jimenez-Martin Author-Email: sergi.jimenez@upf.edu, 2012. "The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers," Department of Economics Working Papers 12-12, Stony Brook University, Department of Economics.
  4. Daniel Kemptner, 2013. "Health-Related Life Cycle Risks and Public Insurance," Discussion Papers of DIW Berlin 1320, DIW Berlin, German Institute for Economic Research.

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