The Effects of Longevity and Distortions on Education and Retirement

Pedro C. Ferreira () and Samuel de Abreu Pessoa

No 590, Economics Working Papers (Ensaios Economicos da EPGE) from Graduate School of Economics, Getulio Vargas Foundation (Brazil)

Abstract: This article studies the impact of longevity and taxation on life-cycle decisions and long-run income. Individuals allocate optimally their total lifetime between education, working and retirement. They also decide at each moment how much to save or consume out of their income, and after entering the labor market how to divide their time between labor and leisure. The model incorporates experience-earnings profiles and the return-to-education function that follows evidence from the labor literature. In this setup, increases in longevity raises the investment in education - time in school - and retirement. The model is calibrated to the U.S. and is able to reproduce observed schooling levels and the increase in retirement, as the evidence shows. Simulations show that a country equal to the U.S. but with 20% smaller longevity will be 25% poorer. In this economy, labor taxes have a strong impact on the per capita income, as it decreases labor effort, time at school and retirement age, in addition to the general equilibrium impact on physical capital. We conclude that life-cycle effects are relevant in analyzing the aggregate outcome of taxation.

Date: 2005-06-02
View list of references View citations in EconPapers

Downloads: (external link)
http://virtualbib.fgv.br/dspace/bitstream/10438/521/1/1854.pdf (application/pdf)

Related works:
Working Paper: The Effects of Longevity and Distortions on Education and Retirement (2005)
Journal Article: The Effects of Longevity and Distortions on Education and Retirement (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fgv:epgewp:590

Access Statistics for this paper

More papers in Economics Working Papers (Ensaios Economicos da EPGE) from Graduate School of Economics, Getulio Vargas Foundation (Brazil)
Contact information at EDIRC.
Series data maintained by Núcleo de Computação da EPGE ().