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The Effects of Longevity and Distortions on Education and Retirement

Author

Listed:
  • Pedro Cavalcanti Ferreira

    (Fundacao Getulio Vargas)

  • Samuel de Abreu Pessoa

    (Fundacao Getulio Vargas)

Abstract

This article studies the impact of longevity and taxation on life-cycle decisions and long run income. Individuals allocate optimally their total lifetime between education, working and retirement. They also decide at each moment how much to save or consume out of their income, and, after entering the labor market, how to divide their time between labor and leisure. The model incorporates experience-earnings profiles and return to education function that follows evidence from the labor literature. In this setup increases in longevity raises the investment in education - time in school - and retirement. The model is calibrated to the U.S. and is able to reproduce observed schooling trends of the last century. It also reproduces the increase in retirement, as the evidence shows. Simulations show that a country equal to the U.S. but with 20% smaller longevity will be 25% poorer, mostly because of the impact of life expectancy on human capital formation and retirement. In this economy labor taxes has a strong impact on the per capita income, as it decreases labor effort, time at school and retirement age, in addition to the general equilibrium impact over physical capital. (Copyright: Elsevier)

Suggested Citation

  • Pedro Cavalcanti Ferreira & Samuel de Abreu Pessoa, 2007. "The Effects of Longevity and Distortions on Education and Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 472-493, July.
    • Handle: RePEc:red:issued:05-49
    DOI: 10.1016/j.red.2007.01.003
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    Cited by:

    1. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2005. "Special interests and political business cycles," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 597, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    2. Pedro Cavalcanti Ferreiray & Marcelo Rodrigues dos Santos, 2012. "The Effect of Social Security, Health, Demography and Technology on Retirement," Business and Economics Working Papers 163, Unidade de Negocios e Economia, Insper.
    3. Aisa, Rosa & Larramona, Gemma & Pueyo, Fernando, 2015. "Active aging, preventive health and dependency: Heterogeneous workers, differential behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 1-9.
    4. Pedro Cavalcanti Ferreira & Marcelo Rodrigues dos Santos, 2013. "The Effect of Social Security, Health, Demography and Technology on Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 350-370, April.
    5. Barbosa, Fernando de Holanda, 2005. "The contagion effect of public debt on monetary policy: the brazilian experience," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 591, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    6. Cysne, Rubens Penha, 2006. "Income inequality in a job-search model with heterogeneous discount factors: (revised version, forthcoming 2006, Revista Economia)," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 611, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    7. Sánchez-Romero, Miguel & d׳Albis, Hippolyte & Prskawetz, Alexia, 2016. "Education, lifetime labor supply, and longevity improvements," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 118-141.
    8. Cysne, Rubens Penha, 2006. "An intra-household approach to the welfare costs of inflation (Revised Version, Forthcoming 2006, Estudos Econômicos)," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 612, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    9. Akira Momota, 2022. "Long lifespan and optimal recurrent education," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 1193-1222, May.
    10. Cipriani, Giam Pietro & Fioroni, Tamara, 2024. "Human capital and pensions with endogenous fertility and retirement," Macroeconomic Dynamics, Cambridge University Press, vol. 28(2), pages 478-494, March.
    11. Daishin Yasui, 2012. "Adult Longevity and Growth Takeoff," Discussion Papers 1218, Graduate School of Economics, Kobe University.
    12. Aloisio Araujo & Mario Pascoa & Juan Pablo Torres-Martinez, 2005. "Bubbles, collateral and monetary equilibrium," Textos para discussão 513, Department of Economics PUC-Rio (Brazil).
    13. Ferreira, Pedro Cavalcanti & Delalibera, Bruno Ricardo, 2016. "Economic growth and complementarity between stages of human capital," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 779, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    14. Mizuno, Masakatsu & Yakita, Akira, 2013. "Elderly labor supply and fertility decisions in aging-population economies," Economics Letters, Elsevier, vol. 121(3), pages 395-399.
    15. Bae, Se Yung & Jeon, Junkee & Koo, Hyeng Keun & Park, Kyunghyun, 2020. "Social insurance for the elderly," Economic Modelling, Elsevier, vol. 91(C), pages 274-299.
    16. Ferreira, Pedro Cavalcanti & Santos, Marcelo Rodrigues dos, 2008. "The effect of social security, demography and technology on retirement," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 683, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    17. Rosa Aísa & Fernando Pueyo & Marcos Sanso, 2012. "Life expectancy and labor supply of the elderly," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(2), pages 545-568, January.
    18. Flôres Junior, Renato Galvão & Watanuki, Masakazu, 2006. "Integration options for mercosul - an investigation Uusing the AMIDA Model," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 610, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    19. Dong-Hyeon Kim & Peiyao Liu & Shu-Chin Lin, 2024. "The moderating role of financial development in the nexus between population aging and saving," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-32, April.
    20. Gerdie Everaert & Freddy Heylen & Ruben Schoonackers, 2015. "Fiscal policy and TFP in the OECD: measuring direct and indirect effects," Empirical Economics, Springer, vol. 49(2), pages 605-640, September.
    21. R. Schoonackers & F. Heylen, 2011. "Fiscal Policy and TFP in the OECD: A Non-Stationary Panel Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/701, Ghent University, Faculty of Economics and Business Administration.
    22. Ran Yu & Zhangchi Wang & Yan Li & Zuhui Wen & Weijia Wang, 2023. "Does Population Aging Affect Carbon Emission Intensity by Regulating Labor Allocation?," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    23. Giam Pietro Cipriani & Tamara Fioroni, 2024. "Grandparental childcare, family allowances and retirement policies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(6), pages 1669-1692, December.

    More about this item

    Keywords

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    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • I20 - Health, Education, and Welfare - - Education - - - General

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