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Effectiveness of Early Retirement Disincentives: Individual Welfare, Distributional and Fiscal Implications

Timm Bönke (), Daniel Kemptner and Holger Lüthen ()

No 1639, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In aging societies, information on how to reform pension systems is essential to policy makers. This study scrutinizes effects of early retirement disincentives on retirement behavior, individual welfare, pensions and public budget. We employ administrative pension data and a detailed model of the German tax and social security system to estimate a structural dynamic retirement model. We find that retirement behavior is strongly influenced by the level of disincentives. Further, disincentives come at the cost of increasing inequality and individual welfare losses. Still, net public returns are about three times as high as monetarized individual welfare losses. Our estimates also suggest that similar levels of net public returns, if achieved by indiscriminating pension cuts, are associated with individual welfare losses that are more than twice as high.

Keywords: dynamic discrete choice; retirement; tax and pension system; pension reform (search for similar items in EconPapers)
JEL-codes: C61 H55 J26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge and nep-pbe
Date: 2017
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Related works:
Journal Article: Effectiveness of early retirement disincentives: Individual welfare, distributional and fiscal implications (2018) Downloads
Working Paper: Effectiveness of early retirement disincentives: Individual welfare, distributional and fiscal implications (2016) Downloads
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