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Incentive Effects of Retirement Income Transfers

Author

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  • Piggot, John
  • Robalino, David
  • Jimenez-Martin, Sergi

Abstract

The paper explores the incentive effects of retirement income transfers – essentially, non-contributory cash transfers aimed at reducing poverty among the elderly. A literature review reveals how little academic analysis of the impact of these transfers has been completed. We begin with a taxonomy of retirement income transfers, differentiating between ex-ante and ex-post interventions and universal and targeted arrangements. This distinction allows important differences across designs to be highlighted. We then provide a simple framework for thinking about what the incentive impacts of the transfers might be, distinguishing between effects related to the transfer itself and those related to the financing mechanism. Thus, from theory and available empirical evidence we derive a few policy relevant findings. First, incentive effects will depend on the level of the transfer relative to average earnings and the degree of integration between the formal and informal sectors in the economy. In general, for modest transfers, negative impacts on savings and labor supply would be contained. Second, we highlight the tradeoff between maintaining low effective marginal tax rates (EMTRs) to reduce distortions and keeping the program costs at affordable levels. This tradeoff suggests that universal programs are suboptimal. Third, in terms of design features, we emphasize the importance of implementing a gradual withdrawal of the benefit to avoid crowding-out contributory pensions among low income individuals and of indexing the eligibility age with life expectancy to contain costs. Finally we find that matching contributions can be a promising instrument to promote savings among individuals with limited savings capacity.

Suggested Citation

  • Piggot, John & Robalino, David & Jimenez-Martin, Sergi, 2008. "Incentive Effects of Retirement Income Transfers," MPRA Paper 12020, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:12020
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    File URL: https://mpra.ub.uni-muenchen.de/12020/2/MPRA_paper_12020.pdf
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    References listed on IDEAS

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    1. Whitehouse, Edward, 2009. "Pensions at a glance: Asia/Pacific," MPRA Paper 36134, University Library of Munich, Germany.
    2. 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.
    3. Bosch, Mariano & Maloney, William F., 2010. "Comparative analysis of labor market dynamics using Markov processes: An application to informality," Labour Economics, Elsevier, vol. 17(4), pages 621-631, August.
    4. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD Publishing.
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    6. de Carvalho Filho, Irineu Evangelista, 2008. "Old-age benefits and retirement decisions of rural elderly in Brazil," Journal of Development Economics, Elsevier, vol. 86(1), pages 129-146, April.
    7. Michele Boldrin & Sergi Jimenez-Martin & Franco Peracchi, 1999. "Social Security and Retirement in Spain," NBER Chapters,in: Social Security and Retirement around the World, pages 305-353 National Bureau of Economic Research, Inc.
    8. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
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    Cited by:

    1. Robalino, David & Vodopivec, Milan & Bodor, Andras, 2009. "Savings for unemployment in good or bad times : options for developing countries," Social Protection and Labor Policy and Technical Notes 50320, The World Bank.
    2. Vandeninden, Frieda, 2012. "A Simulation of Social Pensions in Europe," MERIT Working Papers 008, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Keywords

    Social pensions; Pension coverage; Retirement Insurance; matching contributions;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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