Longevity, Life-cycle Behavior and Pension Reform
AbstractHow 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 InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 556.
Date of creation: 01 Jul 2011
Date of revision:
Life expectancy; Public Pension Reform; Retirement; Employment; Life-cycle models; Consumption; Tax and transfer system;
Other versions of this item:
- Peter Haan & Victoria Prowse, 2011. "Longevity, Life-Cycle Behavior and Pension Reform," Discussion Papers of DIW Berlin 1140, DIW Berlin, German Institute for Economic Research.
- Haan, Peter & Prowse, Victoria, 2012. "Longevity, life-cycle behavior and pension reform," MPRA Paper 39282, University Library of Munich, Germany.
- Peter Haan & Victoria Prowse, 2011. "Longevity, Life-Cycle Behavior and Pension Reform," SOEPpapers on Multidisciplinary Panel Data Research 396, DIW Berlin, The German Socio-Economic Panel (SOEP).
- Haan, Peter & Prowse, Victoria L., 2011. "Longevity, Life-Cycle Behavior and Pension Reform," IZA Discussion Papers 5858, Institute for the Study of Labor (IZA).
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-07-21 (Economics of Ageing)
- NEP-ALL-2011-07-21 (All new papers)
- NEP-DEM-2011-07-21 (Demographic Economics)
- NEP-DGE-2011-07-21 (Dynamic General Equilibrium)
- NEP-LAB-2011-07-21 (Labour Economics)
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