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Longevity, life-cycle behavior and pension reform

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  • Haan, Peter
  • Prowse, Victoria

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 use micro data to estimate a structural life-cycle model of individuals' employment, retirement and consumption decisions. Our modeling approach allows life expectancy and the nature of the public pension system to influence the decisions of forward-looking individuals planning for retirement. We calculate that, in the case of Germany, an increase of 4.34 years in the full pensionable age or a cut of 37.7% in the per-year value of public pension benefits would offset the fiscal consequences of the 6.4 year increase in age 65 life expectancy anticipated to occur over the next 40 years. Of these two approaches to coping with the fiscal impact 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 Library of Munich, Germany in its series MPRA Paper with number 39282.

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Date of creation: 06 Jun 2012
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Handle: RePEc:pra:mprapa:39282

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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

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  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. de la CROIX, David & PIERRARD, Olivier & SNEESSENS, Henri R., . "Aging and pensions in general equilibrium: labor market imperfections matter," CORE Discussion Papers RP -2495, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Haan, Peter & Prowse, Victoria, 2011. "Longevity, Life-Cycle Behavior and Pension Reform," IZA Discussion Papers 5858, Institute for the Study of Labor (IZA).
  3. 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.
  4. 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).
  5. 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 12-12, Stony Brook University, Department of Economics.
  6. Lüthen, Holger, 2014. "Rates of return and early retirement disincentives: Evidence from a German pension reform," Discussion Papers 2014/15, Free University Berlin, School of Business & Economics.

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