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Longevity, Life-cycle Behavior and Pension Reform

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  • Victoria Prowse
  • Peter Haan

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 4.43 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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 556.

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Date of creation: 01 Jul 2011
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Handle: RePEc:oxf:wpaper:556

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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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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. Daniel Kemptner, 2013. "Health-Related Life Cycle Risks and Public Insurance," SOEPpapers on Multidisciplinary Panel Data Research 583, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. 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, Stony Brook University, Department of Economics 12-12, Stony Brook University, Department of Economics.
  3. Victoria Prowse & Peter Haan, 2011. "Longevity, Life-cycle Behavior and Pension Reform," Economics Series Working Papers 556, University of Oxford, Department of Economics.
  4. David de la Croix & Olivier Pierrard & Henri Sneessens, 2010. "Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010037, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Holger Lüthen, 2014. "Rates of Return and Early Retirement Disincentives: Evidence from a German Pension Reform," Discussion Papers of DIW Berlin 1389, DIW Berlin, German Institute for Economic Research.

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