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Consequences of a boost of mandatory retirement age on long run income and PAYG pensions

  • Luciano Fanti

In this paper we study the effects of a boost of the mandatory retirement age, which is largely advocated in most countries facing with both the decline in the labour force participation of elderly workers and the increasing population ageing. It is shown, in the basic two-period overlapping generations model of growth (Diamond, 1965), that the postponement of the retirement age may be harmful for long run income and when the capital’s share is sufficiently high even PAYG pensions are reduced. In conclusion, since it is shown that the age of retirement might be reduced obtaining a higher income and even higher pension benefits, then our results suggest that the idea that a higher mandatory age of retirement is always beneficial in the long run for income and pension payments is theoretically controversial.

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Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2012/149.

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Date of creation: 01 Sep 2012
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Handle: RePEc:pie:dsedps:2012/149
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