Why the Statutory Retirement Age Is Too Low in a Democracy

Berthold U. Wigger

Journal of Public Economic Theory, 2025, vol. 27, issue 3

Abstract: This paper examines the normative criteria for setting the statutory retirement age (SRA) under majority voting. It finds that when the working population forms the democratic majority, the SRA tends to be set inefficiently low. This inefficiency stems from a positive fiscal externality in pay‐as‐you‐go pension systems: workers determining the SRA do not consider the benefits that a higher retirement age provides to current pensioners. Using a continuous‐time overlapping generations model, the paper demonstrates that a Pareto improvement can be achieved by raising the SRA–provided it is accompanied by compensatory transfers from pensioners to workers at the time of the increase.

Date: 2025
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https://doi.org/10.1111/jpet.70034

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:27:y:2025:i:3:n:e70034

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