Endogenous retirement behavior of heterogeneous households under pension reforms

Arbeitspapier

We propose a unified framework to measure the effects of different reforms of the pension system on retirement ages and macroeconomic indicators in the face of demographic change. A rich overlapping generations (OLG) model is built and endogenous retirement decisions are explicitly modeled within a public pension system. Heterogeneity with respect to consumption preferences, wage profiles, and survival rates is embedded in the model. Besides the expected direct effects of these reforms on the behavior of households, we observe that feedback effects do occur. Results suggest that individual retirement decisions are strongly influenced by numerous incentives produced by the pension system and macroeconomic variables, such as the statutory eligibility age, adjustment rates, the presence of a replacement rate, and interest rates. Those decisions, in turn, have several impacts on the macro-economy which can create feedback cycles working through equilibrium effects on interest rates and wages. Taken together, these reform scenarios have strong implications for the sustainability of pension systems. Because of the rich nature of our unified model framework, we are able to rank the reform proposals according to several individual and macroeconomic measures, thereby providing important support for policy recommendations on pension systems.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 221

Classification and Topics

• Classification: Wirtschaft ; Computable General Equilibrium Models ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; General Aggregative Models: Forecasting and Simulation: Models and Applications ; Social Security and Public Pensions ; Demographic Trends, Macroeconomic Effects, and Forecasts ; Retirement; Retirement Policies
• Subject: population aging ; pension reform ; social security ; life-cycle behavior ; labor supply ; retirement age ; welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Börsch-Supan, Axel ; Härtl, Klaus ; Leite, Duarte ; Ludwig, Alexander
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (where): Frankfurt a. M.
• (when): 2018

Further information

• DOI: doi:10.2139/ssrn.3235142
• Handle: http://hdl.handle.net/10419/181657
• URN: urn:nbn:de:hebis:30:3-472334
• Last update: 10.03.2025, 11:41 AM CET