Longevity, Life-Cycle Behavior and Pension Reform

Peter Haan and Victoria Prowse

No 5858, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: How can public pension systems be reformed to ensure fiscal stability in the face of increasing life expectancy? To address this pressing open question in public finance, we estimate a life-cycle model in which the optimal employment, retirement and consumption decisions of forward-looking individuals depend, inter alia, on life expectancy and the design of the public pension system. We calculate that, in the case of Germany, the fiscal consequences of the 6.4 year increase in age 65 life expectancy anticipated to occur over the 40 years that separate the 1942 and 1982 birth cohorts can be offset by either an increase of 4.34 years in the full pensionable age or a cut of 37.7% in the per-year value of public pension benefits. Of these two distinct policy approaches to coping with the fiscal consequences of improving longevity, increasing the full pensionable age generates the largest responses in labor supply and retirement behavior.

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)
Pages: 43 pages
Date: 2011-07
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published - published in: Journal of Econometrics, 2014, 178 (3), 582-601

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Related works:
Journal Article: Longevity, life-cycle behavior and pension reform (2014)
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)
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