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Early Retirement and Social Security: A Long Term Perspective

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  • J. Ignacio Conde-Ruiz

    ()
    (Spanish Prime Minister's Economic Bureau and FEDEA)

  • Vincenzo Galasso

    ()
    (IGIER, Università Bocconi, CSEF and CEPR)

  • Paola Profeta

    ()
    (Università Bocconi)

Abstract

We provide a long term perspective on the individual retirement behavior and on the future of retirement. In a Markovian political economic theoretical framework, in which incentives to retire early are embedded, we derive a political equilibrium with positive social security contribution rates and early retirement. While aging has opposite economic and political effects on social security contributions, it may lead to postponing retirement -- by reducing the generosity of pension benefits -- unless the political effect leads to a large increase in contribution and hence higher benefits. Economic slowdowns, captured by a reduction in wage income in youth, will also induce workers to postpone retirement and to vote for less social security

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 165.

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Date of creation: 01 Sep 2006
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Handle: RePEc:sef:csefwp:165

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Keywords: pensions; income effect; tax burden; politico-economic Markovian equilibrium;

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Cited by:
  1. Ryo Arawatari & Tetsuo Ono, 2008. "A Political Economy Model of Earnings Mobility and Redistribution Policy," Discussion Papers in Economics and Business 08-18-Rev.4, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Oct 2012.
  2. Galasso, Vincenzo, 2006. "Postponing Retirement: the Political Push of Aging," CEPR Discussion Papers 5777, C.E.P.R. Discussion Papers.

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