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The Impact of the Retirement Decision and Demographics on Pension Sustainability: A Dynamic Microsimulation Analysis

Author

Listed:
  • Concepció Patxot

    (Departament de Teoria Econòmica, Universitat de Barcelona.)

  • Meritxell Solé

    (Departament de Teoria Econòmica, Universitat de Barcelona.)

  • Guadalupe Souto

    (Departament d’Economia Aplicada, Universitat Autònoma de Barcelona.)

  • Martin Spielauer

    (Austrian Institute of Economic Research (WIFO).)

Abstract

This paper investigates how retirement decisions, in interaction with demographic changes, impact on pension system sustainability. To do so, we introduce behaviour into a dynamic microsimulation model applied to the Spanish case. Specifically, the retirement decision is modelled using a reduced-form survival model that provides information on retirement hazards, which are then used to calculate times to retirement within the microsimulation model. This model allows us to account for behavioural responses. For example, the behavioural reaction to the 2011 reform improves pension system sustainability, despite individuals opting to retire later to obtain higher benefits. The positive effect (increase in contributions and reduction in time spent in retirement) is greater than the negative effect (increase in pension levels). Additionally, the model allows us to show how the positive effects of the education transition and higher rates of female and older worker participation contribute to reducing the negative impact of population ageing.

Suggested Citation

  • Concepció Patxot & Meritxell Solé & Guadalupe Souto & Martin Spielauer, 2018. "The Impact of the Retirement Decision and Demographics on Pension Sustainability: A Dynamic Microsimulation Analysis," International Journal of Microsimulation, International Microsimulation Association, vol. 11(2), pages 84-108.
    • Handle: RePEc:ijm:journl:v11:y:2018:i:2:p:84-108
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    File URL: https://microsimulation.org/IJM/V11_2/IJM_11_2_2.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    DYNAMIC MICROSIMULATION; PENSION REFORMS; BEHAVIOURAL MODEL; AGEING;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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