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Growth, PAYG pension systems crisis and mandatory age of retirement

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  • Luciano Fanti
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    Abstract

    Since in many countries - plagued by low fertility - significant increases of the mandatory retirement age have been recently introduced with the declared objective to sustain PAYG pension budgets, then in this paper we investigate whether and how such boosts are effective. It is shown - in the basic two-period overlapping generations model of endogenous growth, which is maybe the toy-model most used for pension policy analyses - that the postponement of the retirement age is always harmful for growth and even for pension payments. Therefore this result suggests that the effects of boosts of mandatory retirement ages for sustaining PAYG pension budgets may not be warranted.

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    Bibliographic Info

    Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2012/153.

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    Date of creation: 01 Sep 2012
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    Handle: RePEc:pie:dsedps:2012/153

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    Keywords: Retirement age; Pensions; OLG model;

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    1. Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2003. "The Macroeconomics of Early Retirement," CEPR Discussion Papers 3896, C.E.P.R. Discussion Papers.
    3. Juan Antonio Lacomba & Francisco Miguel Lagos, 2005. "Population Aging and Legal Retirement Age," ThE Papers 05/16, Department of Economic Theory and Economic History of the University of Granada..
    4. repec:ebl:ecbull:v:10:y:2008:i:2:p:1-8 is not listed on IDEAS
    5. Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer, vol. 15(4), pages 737-755.
    6. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521806428, April.
    7. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Voting on pensions with endogenous retirement age," CORE Discussion Papers RP -1754, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-83, June.
    9. Luciano Fanti & Luca Spataro, 2007. "Poverty traps and intergenerational transfers," Discussion Papers 2007/66, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    10. Luca Gori & Luciano Fanti, 2008. "Longevity and PAYG pension systems sustainability," Economics Bulletin, AccessEcon, vol. 10(2), pages 1-8.
    11. Momota, Akira, 2003. "A retirement decision in the presence of a social security system," Journal of Macroeconomics, Elsevier, vol. 25(1), pages 73-86, March.
    12. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 7-50, 04.
    13. Fanti, Luciano & Gori, Luca, 2010. "Increasing PAYG pension benefits and reducing contribution rates," Economics Letters, Elsevier, vol. 107(2), pages 81-84, May.
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