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Reforming the retirement scheme: Flexible retirement vs. Legal retirement age

Author

Listed:
  • Juan A. Lacomba

    () (Department of Economic Theory and Economic History, University of Granada.)

  • Francisco M. Lagos

    () (Department of Economic Theory and Economic History, University of Granada.)

Abstract

We compare a Social Security system where people can retire at the age of their own choice with one in which there is a legal retirement age elected through a majority voting process. We analyze how incentives on retirement decisions change depending on the retirement rules. We show that individuals prefer a legal retirement age higher than that they would choose in the flexible scheme since in this scheme they ignore the impact of their decisions on the Social Security budget constraint. In spite of that, we show that when the legal retirement age significantly limits the retirement age of high-wage workers, a flexible scheme would improve the financing of the pension system. Finally, we show that even when pension benefits are higher with a legal retirement age, a flexible system might be implemented since it would be preferred by a majority of the population composed by low- and high-wage workers.

Suggested Citation

  • Juan A. Lacomba & Francisco M. Lagos, 2009. "Reforming the retirement scheme: Flexible retirement vs. Legal retirement age," ThE Papers 09/01, Department of Economic Theory and Economic History of the University of Granada..
  • Handle: RePEc:gra:wpaper:09/01
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    File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers09_01.pdf
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    References listed on IDEAS

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    1. Philippe Michel & Pierre Pestieau, 2013. "Social Security And Early Retirement In An Overlapping-Generations Growth Model," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 723-737, November.
    2. Cremer, Helmuth & Pestieau, Pierre, 2003. "The Double Dividend of Postponing Retirement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 419-434, August.
    3. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, vol. 70(2), pages 207-236, November.
    4. Georges Casamatta & Helmuth Cremer & Pierre Pestieau, 2005. "Voting on Pensions with Endogenous Retirement Age," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(1), pages 7-28, January.
    5. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
    6. J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2003. "Early Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 12-36, January.
    7. Juan Lacomba & Francisco Lagos, 2007. "Political election on legal retirement age," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 29(1), pages 1-17, July.
    8. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. " The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, June.
    9. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, vol. 75(3), pages 341-364, March.
    10. Sheshinski, Eytan, 1978. "A model of social security and retirement decisions," Journal of Public Economics, Elsevier, vol. 10(3), pages 337-360, December.
    11. Juan Lacomba & Francisco Lagos, 2006. "Population aging and legal retirement age," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(3), pages 507-519, July.
    12. Vincent P. Crawford & David M. Lilien, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, Oxford University Press, vol. 96(3), pages 505-529.
    13. András Simonovits, 2004. "Designing Benefit Rules for Flexible Retirement with or without Redistribution," CESifo Working Paper Series 1370, CESifo Group Munich.
    14. John B. Burbidge & A. Leslie Robb, 1980. "Pensions and Retirement Behaviour," Canadian Journal of Economics, Canadian Economics Association, vol. 13(3), pages 421-437, August.
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    More about this item

    Keywords

    Social security; Flexible retirement; Legal retirement age.;

    JEL classification:

    • 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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