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The Importance of Financial Incentives on Retirement Choices: New Evidence for Italy

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  • M. Belloni
  • R. Alessie

Abstract

This study exploits a new dataset in order to quantify the effect of financial incentives on retirement choices. This dataset contains - for the first time in Italy - information on seniority. In accordance with the general finding in Gruber and Wise (2004), we find that financial incentives have an effect on retirement. The effect goes in the expected direction; when employees become eligible for pension benefits the change in financial incentives they experience is so high that their retirement probability increases in a sizable way.We also find that the procedure to impute seniority used in previous studies leads to a sizable measurement error. Due to this measurement error, the key parameters of the model are inconsistently estimated. Our sensitivity analysis suggests that the lack of appropriate information on seniority is an important reason for the unclear evidence so far obtained in retirement studies for Italy.

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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 08-10.

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Length: 29 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:use:tkiwps:0810

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Keywords: retirement; social security wealth; seniority; unobserved heterogeneity;

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References

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  1. Raffaele Miniaci, 1998. "Microeconometric Analysis of the Retirement Decision: Italy," OECD Economics Department Working Papers 205, OECD Publishing.
  2. Agar Brugiavini & Franco Peracchi, 2008. "Fiscal Implications of Pension Reforms in Italy," Working Papers 2008_30, Department of Economics, University of Venice "Ca' Foscari".
  3. Agar Brugiavini, 1999. "Social Security and Retirement in Italy," NBER Chapters, in: Social Security and Retirement around the World, pages 181-237 National Bureau of Economic Research, Inc.
  4. Didier Blanchet & Louis-Paul Pele, 1997. "Social Security and Retirement in France," NBER Working Papers 6214, National Bureau of Economic Research, Inc.
  5. Axel Borsch-Supan & Reinhold Schnabel, 1997. "Social Security and Retirement in Germany," NBER Working Papers 6153, National Bureau of Economic Research, Inc.
  6. Angus S. Deaton & Christina Paxson, 1994. "Saving, Growth, and Aging in Taiwan," NBER Chapters, in: Studies in the Economics of Aging, pages 331-362 National Bureau of Economic Research, Inc.
  7. Randall K. Filer & Marjorie Honig, 2005. "Endogenous Pensions and Retirement Behavior," Economics Working Paper Archive at Hunter College 410, Hunter College Department of Economics.
  8. Agar Brugiavini & Franco Peracchi, 2003. "Social Security Wealth and Retirement Decisions in Italy," LABOUR, CEIS, vol. 17(SpecialIs), pages 79-114, 08.
  9. Klaas de Vos & Arie Kapteyn, 2004. "Incentives and Exit Routes to Retirement in the Netherlands," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 461-498 National Bureau of Economic Research, Inc.
  10. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  11. Spataro, Luca, 2005. "Social security incentives and retirement decisions in Italy: An empirical insight," Research in Economics, Elsevier, vol. 59(3), pages 223-256, September.
  12. Bottazzi, Renata & Jappelli, Tullio & Padula, Mario, 2006. "Retirement expectations, pension reforms, and their impact on private wealth accumulation," CFS Working Paper Series 2006/10, Center for Financial Studies (CFS).
  13. Hans Bloemen, 2008. "Private Wealth and Job Exit at Older Age: a Random Effects Model," Tinbergen Institute Discussion Papers 08-025/3, Tinbergen Institute.
  14. Courtney Coile & Jonathan Gruber, 2001. "Social Security Incentives for Retirement," NBER Chapters, in: Themes in the Economics of Aging, pages 311-354 National Bureau of Economic Research, Inc.
  15. Peter Diamond & Jonathan Gruber, 1999. "Social Security and Retirement in the United States," NBER Chapters, in: Social Security and Retirement around the World, pages 437-473 National Bureau of Economic Research, Inc.
  16. Chan, Sewin & Stevens, Ann Huff, 2004. "Do changes in pension incentives affect retirement? A longitudinal study of subjective retirement expectations," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1307-1333, July.
  17. Agar Brugiavini & Franco Peracchi, 2004. "Micro-Modeling of Retirement Behavior in Italy," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 345-398 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Michele Belloni & Rob Alessie & Adriaan Kalwij & Chiara Marinacci, 2012. "Lifetime income and old age mortality risk in Italy over two decades," Working Papers 2012: 29, Department of Economics, University of Venice "Ca' Foscari".
  2. Michele Belloni & Rob Alessie, 2010. "Retirement Choices in Italy: What an Option Value Model tells us," Tinbergen Institute Discussion Papers 10-102/3, Tinbergen Institute.
  3. Alexander M. Danzer, 2010. "Retirement Responses to a Generous Pension Reform: Evidence from a Natural Experiment in Eastern Europe," ESCIRRU Working Papers 23, DIW Berlin, German Institute for Economic Research.
  4. Peri, Giovanni & Romiti, Agnese & Rossi, Mariacristina, 2013. "Immigrants, Household Production and Women's Retirement," IZA Discussion Papers 7549, Institute for the Study of Labor (IZA).
  5. repec:dgr:uvatin:2010102 is not listed on IDEAS

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