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The Sooner The Better - The Welfare Effects of the Retirement Age Increase Under Various Pension Schemes

Author

Listed:
  • Marcin Bielecki

    (Faculty of Economic Sciences, University of Warsaw)

  • Karolina Goraus

    (Faculty of Economic Sciences, University of Warsaw)

  • Jan Hagemejer

    (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)

  • Joanna Tyrowicz

    (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)

Abstract

We evaluate the welfare and macroeconomic effects of increasing the retirement age in the context of population aging. In an overlapping generations framework we simulate the increase of the retirement age by seven years under different pension systems (defined benefit, notionally defined contribution and fully funded). We show that raising the retirement wage is universally welfare enhancing for all living and future cohorts, regardless of the pension system. Quantitatively, this policy intervention is able to counterweight the adverse macroeconomic consequences of aging. We test the validity of our findings in a population with lower pace of aging due to higher fertility. Finally, we show scope for further welfare gains if productivity is relatively high at old ages.

Suggested Citation

  • Marcin Bielecki & Karolina Goraus & Jan Hagemejer & Joanna Tyrowicz, 2014. "The Sooner The Better - The Welfare Effects of the Retirement Age Increase Under Various Pension Schemes," Working Papers 2014-12, Faculty of Economic Sciences, University of Warsaw.
  • Handle: RePEc:war:wpaper:2014-12
    as

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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP129.pdf
    File Function: First version, 2014
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    References listed on IDEAS

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    More about this item

    Keywords

    pension system; defined benefit; NDC; retirement age; pension system reform; welfare;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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