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An evaluation of the life-cycle effects of minimum pensions on retirement behaviour: Extended Version

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  • Sergi Jiménez-Martín

    ()
    (Department of Economics, Universitat Pompeu Fabra)

  • Alfonso R Sánchez-Martín

    ()
    (Department of Economics, Universidad Pablo de Olavide)

Abstract

In this paper we explore the effects of the minimum pension program on welfare and retirement in Spain. This is done with a stylized life-cycle model which provides a convenient analytical characterization of optimal behavior. We use data from the Spanish Social Security to estimate the behavioral parameters of the model and then simulate the changes induced by the minimum pension in aggregate retirement patterns. The impact is substantial: there is a threefold increase in retirement at 60 (the age of first entitlement) with respect to the economy without minimum pensions, and total early retirement (before or at 60) is almost 50% larger.

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File URL: http://www.upo.es/serv/bib/wps/econ0623.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 06.23.

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Length: 46 pages
Date of creation: Sep 2006
Date of revision:
Publication status: Forthcoming in Journal of Applied Econometrics
Handle: RePEc:pab:wpaper:06.23

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Keywords: Retirement; life cycle model; minimum pension; structural estimation;

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References

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  1. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
  2. Eric French and John Jones, 2001. "The Effects of Health Insurance and Self-Insurance on Retirement Behavior," Computing in Economics and Finance 2001 24, Society for Computational Economics.
  3. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1990. "Three Models of Retirement: Computational Complexity Versus Predictive Validity," NBER Working Papers 3558, National Bureau of Economic Research, Inc.
  4. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  5. Alan L. Gustman & Thomas L. Steinmeier, 1983. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
  6. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, vol. 70(2), pages 207-236, November.
  7. Siu Fai Leung, 2000. "Why Do Some Households Save So Little? A Rational Explanation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 771-800, October.
  8. Eytan Sheshinski, 1977. "A Model of Social Security and Retirement Decisions," NBER Working Papers 0187, National Bureau of Economic Research, Inc.
  9. repec:att:wimass:9430 is not listed on IDEAS
  10. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 505-29, August.
  11. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  12. Michele Boldrin & Sergi Jimenez-Martni & Franco Peracchi, 1997. "Social Security and Retirement in Spain," NBER Working Papers 6136, National Bureau of Economic Research, Inc.
  13. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
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