Social Security and Economic Integration

peer reviewe

The Role of Income Effects in Early Retirement

We provide a long term perspective on the individual retirement behavior and on the future of retirement by emphasizing the role of (negative) income effects. We consider a political economic theoretical framework, with actuarially "fair" and "unfair" early retirement schemes, and derive a political equilibrium with positive social security contribution rates and early retirement. A reduction in the wages in youth, consistent with the recent labor market trends since the massive introduction of temporary jobs, induces workers to postpone retirement, and -- in the "unfair" system -- leads to lower contribution rates. A reduction in the growth rate of the economy has opposite effects on the retirement decisions, leading -- in the "unfair" system -- to more early retirement. Aging induces a negative income effect, but has also an opposite political effects on social security contributions and retirement decisions. For an actuarially "fair" social security system, we provide conditions for the political effect to dominate; in an "unfair" scheme, numerical simulations confirm a slight predominance of the political effect, as contribution rates increase. These results may shed some light on the future of early retirement in aging societies

Health spending, education and endogenous demographics in an OLG model

We present a model of endogenous aging with public expenditure on health and pensions financed by an income tax. We show that government policies on health and pensions might lift an economy from a low to a high income steady state. In particular, the impact of an increase in the income tax is non monotonic and depends on the initial levels of income and longevity: it is positive at low levels, and negative at high levels. On the other hand, a change in the allocation of public spending from social security benefits to health expenditures, without varying the tax rate, always increases income, even though pension benefits might decrease, and the problem of population aging could worsen

Pension reform and labor market incentives

Pension reform, Retirement, Tax–benefit link, H55, J26,