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Endogenous retirement and public pension system reform in Spain

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  • Sánchez Martín, Alfonso R.

Abstract

All around the world , developed countries have resorted to parametric reforms of their Social Security systems, in an attempt to lessen the impact of the population aging. In particular, pension formulae have been modified to reduce the generosity of the systems and to induce longer working careers. In this paper we explore the capacity of these reforms to alleviate the expected financial difficulties of current PAYG systems. This is accomplished by developing and Heterogeneous Agents, Applied General Equilibrium model where individuals can freely adjust their retirement ages in response to the incentives provided by the pension regulations. This inclusion is relevant, as parametric changes tend to significantly alter retirement incentives. We find that the calibrated model successfully reproduces the basic stylized facts of retirement behavior in Spain. In particular, it mimics the early retirement pattern of low income workers under the effects of minimum pensions. The model is then used to explore the effects of several changes in pension formula, including the reform actually implemented in 1997. The general conclusion is that parametric changes can significantly improve the financial condition of the system, but are far away from being able to fully restoring it.

Suggested Citation

  • Sánchez Martín, Alfonso R., 2001. "Endogenous retirement and public pension system reform in Spain," UC3M Working papers. Economics we013503, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:we013503
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    Cited by:

    1. Alfonso SANCHEZ-MARTIN & Virginia SANCHEZ-MARCOS, "undated". "Demographic Change, Pension Reform and Redistribution in Spain," EcoMod2008 23800123, EcoMod.
    2. Ramón Cobo-Reyes & Julian Diaz-Saavedra, 2008. "La Percepción de los Trabajadores en España de la Normativa del Sistema Público de Pensiones," ThE Papers 08/15, Department of Economic Theory and Economic History of the University of Granada..
    3. Kallweit, Manuel & Fehr, Hans & Kindermann, Fabian, 2011. "Should pensions be progressive? Yes, at least in Germany!," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48708, Verein für Socialpolitik / German Economic Association.
    4. Luca MARCHIORI & Olivier PIERRARD & Henri R. SNEESSENS, 2011. "Demography, capital flows and unemployment," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011040, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Tim BUYSE & Freddy HEYLEN & Renaat VAN DE KERCKHOVE, 2011. "Pension reform, employment by age and long-run growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    6. Catalán, Mario & Guajardo, Jaime & Hoffmaister, Alexander W., 2010. "Coping with Spain's aging: retirement rules and incentives," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(04), pages 549-581, October.
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    8. Julian Diaz Saavedra, 2014. "Early Retirement, Social Security, and Output Gap," ThE Papers 14/01, Department of Economic Theory and Economic History of the University of Granada..
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    11. Sergi Jiménez-Martín & Alfonso R. Sánchez Martín, 2007. "An evaluation of the life cycle effects of minimum pensions on retirement behavior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(5), pages 923-950.
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    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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