A note on “raising the mandatory retirement age and its effect on long‐run income and Pay As You Go (PAYG) pensions”
Metroeconomica, 2019, vol. 70, issue 1, 68-76
Fanti (2014, Metroeconomica, 65, 619–645) showed that raising the mandatory retirement age always reduces capital accumulation and may lower per young income and pension benefit, under the assumption that old labor and young labor are perfect substitutes (or equivalently, the elasticity of substitution is infinite). We reexamine his analysis by assuming that the two labors are imperfect substitutes (the elasticity of substitution is finite), and prove that his results no longer hold when the elasticity of substitution is not sufficiently high.
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