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On welfare effects of increasing retirement age

Krzysztof Makarski () and Joanna Tyrowicz ()

No 10, GRAPE Working Papers from GRAPE Group for Research in Applied Economics

Abstract: We develop an OLG model with realistic assumptions about longevity to analyze the welfare effects of raising the retirement age. We look at a scenario where an economy has a pay-as-you-go defined benefit scheme and compare it to a scenario with defined contribution schemes (funded or notional). We show that initially in both types of pension system schemes majority of the welfare effects come from adjustment in taxes and/or prices. After the transition period, welfare effects are predominantly generated by the preference for smoothing inherent in many widely used models. We also show that although incentives differ between defined benefit and defined contribution systems, the welfare effects are of comparable magnitude under both schemes. We provide an explanation for this counter-intuitive result.

Keywords: longevity; PAYG; retirement age; pension system reform; welfare (search for similar items in EconPapers)
JEL-codes: C68 E21 J11 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge, nep-mac and nep-pbe
Date: 2017
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Related works:
Working Paper: On Welfare Effects of Increasing Retirement Age (2018) Downloads
Working Paper: On Welfare Effects of Increasing Retirement Age (2018) Downloads
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