Longevity, life-cycle behavior and pension reform

Peter Haan and Victoria Prowse

Journal of Econometrics, 2014, vol. 178, issue P3, 582-601

Abstract: How can public pension systems be reformed to ensure fiscal stability in the face of increasing life expectancy? To address this question, we use micro data to estimate a structural life-cycle model of individuals’ employment, retirement and consumption decisions. We calculate that, in the case of Germany, an increase of 3.76 years in the pension age thresholds or a cut of 26.8% in the per-year value of public pension benefits would offset the fiscal consequences of the increase in life expectancy anticipated to occur over the next 40 years. On average, individuals value the increase in the pension age thresholds at 3.44% of baseline consumption, and are willing to forgo 8.51% of baseline consumption to avoid the cut in per-year pension value. The increase in the pension age thresholds makes 87.7% of individuals better-off, and generates large responses in labor supply and retirement behavior. However, the favorable effects of this reform depend on the availability of jobs for older individuals.

Keywords: Life expectancy; Public pension reform; Retirement; Employment; Life-cycle models; Consumption; Tax and transfer system (search for similar items in EconPapers)
JEL-codes: D91 J11 J22 J26 J64 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

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Related works:
Working Paper: Longevity, life-cycle behavior and pension reform (2012)
Working Paper: Longevity, Life-Cycle Behavior and Pension Reform (2011)
Working Paper: Longevity, Life-Cycle Behavior and Pension Reform (2011)
Working Paper: Longevity, Life-Cycle Behavior and Pension Reform (2011)
Working Paper: Longevity, Life-cycle Behavior and Pension Reform (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:178:y:2014:i:p3:p:582-601

DOI: 10.1016/j.jeconom.2013.08.038

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