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The introduction of disincentives for early retirement and its effect on labor market participation

Author

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  • Kemptner, Daniel
  • Timm, Boenke
  • Holger, Luethen

Abstract

We evaluate the actual effectiveness of disincentives that have been introduced for early retirement in Germany. Therefore, we set up a detailed model of the German social security and tax system with special attention to the PAYG-pension system. Building on the fact that the institutional changes were phased in, impacting birth cohorts to a different degree we are able to estimate the parameters of a structural dynamic retirement model. This allows us to answers the question, whether and to what degree disincentives are able to steer retirement behavior of German pensioners. These estimates are based on high quality administrative data. We also discuss the implications for the financial stability of the PAYG-pension scheme and investigate distributional effects. On the basis of our simulations we try to give some insights on how a complementary private old age insurance plan (e.g. a life annuity) would have to look like, if the pre-reform level of old age income is to be retained.

Suggested Citation

  • Kemptner, Daniel & Timm, Boenke & Holger, Luethen, 2014. "The introduction of disincentives for early retirement and its effect on labor market participation," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100446, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc14:100446
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    File URL: https://www.econstor.eu/bitstream/10419/100446/1/VfS_2014_pid_486.pdf
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    References listed on IDEAS

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    4. Sikandar Siddiqui, 1997. "The pension incentive to retire: Empirical evidence for West Germany," Journal of Population Economics, Springer;European Society for Population Economics, vol. 10(4), pages 463-486.
    5. 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.
    6. Hanel, Barbara, 2010. "Financial incentives to postpone retirement and further effects on employment -- Evidence from a natural experiment," Labour Economics, Elsevier, vol. 17(3), pages 474-486, June.
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    Cited by:

    1. Holger Lüthen, 2014. "Rente und Reform: Lehren aus der Vergangenheit," DIW Roundup: Politik im Fokus 14, DIW Berlin, German Institute for Economic Research.
    2. Holger Lüthen, 2016. "Rates of Return and Early Retirement Disincentives: Evidence from a German Pension Reform," German Economic Review, Verein für Socialpolitik, vol. 17(2), pages 206-233, May.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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