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Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners

Listed author(s):
  • Euwals, Rob

    ()

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Trevisan, Elisabetta

    ()

    (University of Padua)

This paper investigates the impact of financial incentives on early retirement behaviour for high and low wage earners. Using a stylized life-cycle model, we derive hypotheses on the behaviour of the two types. We use administrative data and employ a linear random effects model to test the predictions. We exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. This implies that low wage earners will experience a stronger incentive to continue working in an early retirement scheme with a low implicit tax rate.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8466.

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Length: 23 pages
Date of creation: Sep 2014
Handle: RePEc:iza:izadps:dp8466
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  1. Richard Blundell & Costas Meghir & Sarah Smith, 2002. "Pension Incentives and the Pattern of Early Retirement," Economic Journal, Royal Economic Society, vol. 112(478), pages 153-170, March.
  2. Rob Euwals & Daniel Vuuren & Ronald Wolthoff, 2010. "Early Retirement Behaviour in the Netherlands: Evidence From a Policy Reform," De Economist, Springer, vol. 158(3), pages 209-236, September.
  3. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2008. "Social Security And Retirement Decision: A Positive And Normative Approach ," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 213-233, 04.
  4. David Joulfaian & Mark O. Wilhelm, 1994. "Inheritance and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 29(4), pages 1205-1234.
  5. Coile, Courtney C. & Levine, Phillip B., 2007. "Labor market shocks and retirement: Do government programs matter?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1902-1919, November.
  6. Arjan Heyma, 2004. "A structural dynamic analysis of retirement behaviour in the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 739-759.
  7. Knut Røed & Fredrik Haugen, 2003. "Early Retirement and Economic Incentives: Evidence from a Quasi-natural Experiment," LABOUR, CEIS, vol. 17(2), pages 203-228, 06.
  8. Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1, December.
  9. Axel Börsch-Supan & Reinhold Schnabel & Simone Kohnz & Giovanni Mastrobuoni, 2004. "Micro-Modeling of Retirement Decisions in Germany," NBER Chapters,in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 285-344 National Bureau of Economic Research, Inc.
  10. Klaas de Vos & Arie Kapteyn, 2004. "Incentives and Exit Routes to Retirement in the Netherlands," NBER Chapters,in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 461-498 National Bureau of Economic Research, Inc.
  11. Agar Brugiavini & Franco Peracchi, 2004. "Micro-Modeling of Retirement Behavior in Italy," NBER Chapters,in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 345-398 National Bureau of Economic Research, Inc.
  12. Adriaan Kalwij & Rob Alessie & Marike Knoef, 2013. "The Association Between Individual Income and Remaining Life Expectancy at the Age of 65 in the Netherlands," Demography, Springer;Population Association of America (PAA), vol. 50(1), pages 181-206, February.
  13. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Social security, retirement age and optimal income taxation," Journal of Public Economics, Elsevier, vol. 88(11), pages 2259-2281, September.
  14. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
  15. Asghar Zaidi & Edward R. Whitehouse, 2009. "Should Pension Systems Recognise "Hazardous and Arduous Work"?," OECD Social, Employment and Migration Working Papers 91, OECD Publishing.
  16. Richard Blundell & Costas Meghir & Sarah Smith, 2004. "Pension Incentives and the Pattern of Retirement in the United Kingdom," NBER Chapters,in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 643-690 National Bureau of Economic Research, Inc.
  17. Baker, Michael & Benjamin, Dwayne, 1999. "Early Retirement Provisions and the Labor Force Behavior of Older Men: Evidence from Canada," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 724-756, October.
  18. Rob Euwals & Ruud de Mooij & Daniel van Vuuren, 2009. "Rethinking retirement; from participation towards allocation," CPB Special Publication 80, CPB Netherlands Bureau for Economic Policy Analysis.
  19. Asch, Beth & Haider, Steven J. & Zissimopoulos, Julie, 2005. "Financial incentives and retirement: evidence from federal civil service workers," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 427-440, February.
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