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On Welfare Effects of Increasing Retirement Age

Krzysztof Makarski () and Joanna Tyrowicz ()

No 11441, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 the majority of welfare effects comes from adjustments 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: pension system reform; retirement age; PAYG; longevity; 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 and nep-mac
Date: 2018-03
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Forthcoming in: Journal of Policy Modelling, doi.org/10.1016/j.jpolmod.2018.11.002

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Related works:
Journal Article: On welfare effects of increasing retirement age (2019) Downloads
Working Paper: On Welfare Effects of Increasing Retirement Age (2018) Downloads
Working Paper: On welfare effects of increasing retirement age (2017) Downloads
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