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Retirement, Pensions, and Ageing

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  • Ben J. Heijdra
  • Ward E. Romp

Abstract

We study the effects of demographic shocks and changes in the pension system on the macroeconomic performance of an advanced small open economy. An overlapping-generations model is constructed which includes a realistic description of the mortality process. Individual agents choose their optimal retirement age, taking into account the time- and age profiles of wages, taxes, and the public pension system. The early retirement provision in most pension systems acts as a trap, inducing most workers to retire well before the normal retirement age. Simulations show that pension reform must be drastic for it to have any effects on the retirement behaviour of workers.

Suggested Citation

  • Ben J. Heijdra & Ward E. Romp, 2007. "Retirement, Pensions, and Ageing," CESifo Working Paper Series 1974, CESifo.
  • Handle: RePEc:ces:ceswps:_1974
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    More about this item

    Keywords

    retirement; pensions; ageing; demography; Gompertz-Makeham Law of mortality; overlapping generations; small open economy;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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