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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

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. Haan, Peter & Prowse, Victoria, 2011. "Longevity, Life-Cycle Behavior and Pension Reform," IZA Discussion Papers 5858, Institute for the Study of Labor (IZA).
  2. Hugo Benítez-Silva & J. Ignacio García-Pérez & Sergi Jiménez-Martín, 2011. "The effects of employment uncertainty and wealth shocks on the labor supply and claiming behavior of older American workers," Economics Working Papers 1275, Department of Economics and Business, Universitat Pompeu Fabra.
  3. David de la Croix & Olivier Pierrard & Henri R. Sneessens, 2011. "Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter," BCL working papers 62, Central Bank of Luxembourg.
  4. Daniel Kemptner, 2013. "Health-Related Life Cycle Risks and Public Insurance," Discussion Papers of DIW Berlin 1320, DIW Berlin, German Institute for Economic Research.

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