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Does social security reform reduce gains from increasing the retirement age?

Karolina Goraus-Tańska (), Krzysztof Makarski () and Joanna Tyrowicz ()

No 2014-03, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: The objective of this paper is to analyze the welfare effects of raising the retirement age. With aging populations, in many countries de iure retirement age has been raised. With a standard assumption that individuals prefer leisure to work, such policy necessitates some welfare deterioration. This could be outweighed by lower taxation (defined benefit schemes becoming more balanced) or higher pension benefits (defined contribution schemes yield higher effective replacement rate). Moreover, it is often argued that actuarially fair pension systems provide sufficient incentives for individuals to extend the number of working years, which undermines the need to change de iure retirement age. In this paper we construct an OLG model in which we analyze welfare effects of extending the retirement age under PAYG defined benefit, PAYG defined contribution and partially funded defined contribution pension schemes. We find that such policy is universally welfare improving. However, postponed retirement translates to lower savings, which implies decrease in per capita capital and output.

Keywords: PAYG; retirement age; pension system reform; time inconsistency; welfare (search for similar items in EconPapers)
JEL-codes: C68 E17 E25 J11 J24 H55 D72 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2014
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP120.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2014-03

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