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Social security reforms and early retirement

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  • Fehr, Hans
  • Sterkeby, Wenche I.
  • Thøgersen, Øystein

Abstract

In order to stimulate labor market participation and improve the financial viability of the social security systems, many recent reform proposals in various OECD economies suggest to scale down the non-actuarial parts of the pension systems. These reforms have a flavour of increased efficiency at the costs of welfare losses for low income individuals. Investigating such a belief, we employ an overlapping generations model which features an endogenous retirement age and heterogenous individuals within generations. Based on a simple theoretical version of the model we demonstrate that high income individuals are likely to gain. The sign of the welfare effect for low income households is ambiguous because we do not know whether the effect of lower pension benefits is offset by the effect of a reduced tax-burden. Employing an extended CGE version of the model, which is calibrated to the Norwegian economy, we consider five reform proposals. It turns out that the various reforms which scale down the public non-actuarial pension system, lead to increases in the retirement age and steady-state welfare gains for all income classes. --

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Bibliographic Info

Paper provided by University of Würzburg, Chair for Monetary Policy and International Economics in its series W.E.P. - Würzburg Economic Papers with number 24.

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Date of creation: 2000
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Handle: RePEc:zbw:wuewep:24

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Keywords: Social security; tax-transfer policies; induced retirement; pensions;

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References

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  1. Fehr, Hans, 1999. "Welfare Effects of Dynamic Tax Reforms," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, edition 1, volume 5, number urn:isbn:9783161470165, July.
  2. Bratberg, E. & Holmas, T.H. & Thogersen, O., 2000. "Assessing the Effects of Early Retirement Programs," Papers, Norwegian School of Economics and Business Administration- 4/2000, Norwegian School of Economics and Business Administration-.
  3. Brunner, Johann K., 1996. "Transition from a pay-as-you-go to a fully funded pension system: The case of differing individuals and intragenerational fairness," Journal of Public Economics, Elsevier, Elsevier, vol. 60(1), pages 131-146, April.
  4. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 274-83, June.
  5. Brunner, Johann K., 1993. "Redistribution and the efficiency of the pay-as-you-go pension system," Discussion Papers, Series I 265, University of Konstanz, Department of Economics.
  6. Jonathan Gruber & David Wise, 1997. "Social Security Programs and Retirement Around the World: Introduction and Summary of Papers by..," NBER Working Papers 6134, National Bureau of Economic Research, Inc.
  7. Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
  8. Raffelhuschen, Bernd & Risa, Alf Erling, 1995. "Reforming social security in a small open economy," European Journal of Political Economy, Elsevier, vol. 11(3), pages 469-485, September.
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Citations

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Cited by:
  1. Erling Holmøy & Kyrre Stensnes, 2008. "Will the Norwegian pension reform reach its goals? An integrated micro-macro assessment," Discussion Papers, Research Department of Statistics Norway 557, Research Department of Statistics Norway.
  2. Enrique Fatás & Juan Lacomba & Francisco Lagos & Ana Moro-Egido, 2013. "An experimental test on dynamic consumption and lump-sum pensions," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 4(4), pages 393-413, November.
  3. Enrique Fatás & Juan A. Lacomba & Francisco M. Lagos & Ana I. Moro, 2008. "Experimental tests on consumption, savings and pensions," ThE Papers, Department of Economic Theory and Economic History of the University of Granada. 08/14, Department of Economic Theory and Economic History of the University of Granada..
  4. Alfonso R Sánchez-Martín, 2008. "Endogenous Retirement and Public Pension System Reform in Spain," Working Papers 08.06, Universidad Pablo de Olavide, Department of Economics.
  5. PESTIEAU, Pierre, . "Are we retiring too early?," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1550, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Holmøy, Erling & Strøm, Birger, 2013. "Computable General Equilibrium Assessments of Fiscal Sustainability in Norway," Handbook of Computable General Equilibrium Modeling, Elsevier, Elsevier.
  7. Fisher, Walter H. & Keuschnigg, Christian, 2007. "Pension Reform and Labor Market Incentives," Economics Series, Institute for Advanced Studies 208, Institute for Advanced Studies.
  8. Kruse, Agneta & Nyberg, Kristian, 2004. "Pensions and external effects of ageing; effects on distribution," Working Papers, Lund University, Department of Economics 2004:27, Lund University, Department of Economics.
  9. Gerhard Glomm & Juergen Jung & Chung Tran, 2006. "Macroeconomic Implications of Early Retirement in the Public Sector: The Case of Brazil," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2006-008, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  10. Fehr, Hans & Jokisch, Sabine & Kallweit, Manuel & Kindermann, Fabian & Kotlikoff, Laurence J., 2013. "Generational Policy and Aging in Closed and Open Dynamic General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, Elsevier, Elsevier.
  11. Manuel Kallweit, 2009. "Rentenreform und Rentenzugangsentscheidung – Eine numerische Gleichgewichtsanalyse," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(4), pages 426-449, August.
  12. Rolf Aaberge & Ugo Colombino & Erling Holmøy & Birger Strøm & Tom Wennemo, 2004. "Population ageing and fiscal sustainability: An integrated micro-macro analysis of required tax changes," Discussion Papers, Research Department of Statistics Norway 367, Research Department of Statistics Norway.

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