On Welfare Effects of Increasing Retirement Age

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 11441

Classification and Topics

• Classification: Wirtschaft ; Computable General Equilibrium Models ; Macroeconomics: Consumption; Saving; Wealth ; Demographic Trends, Macroeconomic Effects, and Forecasts ; Social Security and Public Pensions
• Subject: longevity ; PAYG ; retirement age ; pension system reform ; welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Makarski, Krzysztof ; Tyrowicz, Joanna
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/180459
• Last update: 10.03.2025, 11:45 AM CET