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How should retirement policy adjust to the baby bust ?

Author

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  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Mahieu, Géraldine

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Rillaers, Alexandra

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

To cope with the observed drop in fertility, four policy options are generally considered : lowering pension benefits, increasing social security contributions, postponing retirement, and reducing public debt in advance. To assess the respective merits of these options, we analyze the optimal allocation of resources in an overlapping generations economy where old agents care about leisure. We characterize the decentralization of the optimum both when the retirement age is compulsory and when it results from a private decision. We conclude that the policy recommendation of postponing retirement is not robust to a wide class of preferences and technologies. In contrast, policies aimed at increasing capital through a reduction in public debt are more robust.

Suggested Citation

  • de la Croix, David & Mahieu, Géraldine & Rillaers, Alexandra, 2000. "How should retirement policy adjust to the baby bust ?," LIDAM Discussion Papers IRES 2001003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2001003
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2001-3.pdf
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    References listed on IDEAS

    as
    1. Peters, Wolfgang, 1991. "Public Pensions in Transition: An Optimal Policy Path," Journal of Population Economics, Springer;European Society for Population Economics, vol. 4(2), pages 155-175, May.
    2. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-283, June.
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    More about this item

    Keywords

    pensions; fertility; debt; first-best policy; decentralization;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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