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On the political feasibility of increasing the legal retirement age

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  • Benjamin Bittschi
  • Berthold U. Wigger

Abstract

Within a politico-economic model we first establish three hypotheses: (i) Retirees generally prefer a higher retirement age than workers, whereby just retired individuals prefer the highest retirement age, (ii) in equilibrium the level of the legal retirement age is increasing in longevity and (iii) decreasing in the public pension replacement rate. We then test these hypotheses empirically. Employing micro data for Germany we corroborate the first hypothesis with descriptive regressions and a fuzzy regression discontinuity (FRD) design. We show that just retired individuals are indeed most in favor of an increase in the legal retirement age. On the basis of cross country panel IV regressions we provide evidence for the second and third hypothesis. We demonstrate that a one percentage point increase in the share of the elderly increases the legal retirement age by 0.3 to 0.5 years, and that a 10 percentage point increase in the replacement rate reduces the legal retirement age by 0.5 to 3 years. We conclude that if policy contains the generosity of public pensions, increasing the legal retirement age becomes politically more feasible.

Suggested Citation

  • Benjamin Bittschi & Berthold U. Wigger, 2019. "On the political feasibility of increasing the legal retirement age," EconPol Working Paper 21, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:econwp:_21
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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