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Early Retirement and Social Security: A Long Term Perspective

We provide a long term perspective on the individual retirement behavior and on the future of retirement. In a Markovian political economic theoretical framework, in which incentives to retire early are embedded, we derive a political equilibrium with positive social security contribution rates and early retirement. While aging has opposite economic and political effects on social security contributions, it may lead to postponing retirement -- by reducing the generosity of pension benefits -- unless the political effect leads to a large increase in contribution and hence higher benefits. Economic slowdowns, captured by a reduction in wage income in youth, will also induce workers to postpone retirement and to vote for less social security

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 165.

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Date of creation: 01 Sep 2006
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Handle: RePEc:sef:csefwp:165
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