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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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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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  1. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, 02.
  2. Eric French & John Bailey Jones, 2004. "The Effects of Health Insurance and Self-Insurance on Retirement Behavior," Working Papers, Center for Retirement Research at Boston College wp2004-12, Center for Retirement Research, revised Apr 2004.
  3. Brown, Jeffrey R., 2001. "Private pensions, mortality risk, and the decision to annuitize," Journal of Public Economics, Elsevier, vol. 82(1), pages 29-62, October.
  4. Alberto Alesina & Nichola Fuchs Schuendeln, 2005. "Good bye Lenin (or not?): The Effect of Communism on People's Preferences," NBER Working Papers 11700, National Bureau of Economic Research, Inc.
  5. Arjan Heyma, 2004. "A structural dynamic analysis of retirement behaviour in the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 739-759.
  6. Borsch-Supan, Axel & Schnabel, Reinhold, 1998. "Social Security and Declining Labor-Force Participation in Germany," American Economic Review, American Economic Association, vol. 88(2), pages 173-78, May.
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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. Benítez-Silva, Hugo. & García Pérez, Jose Ignacio & Jiménez Martín, Sergi, 2011. "The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers," Working Papers 2011-09, FEDEA.

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