Hostname: page-component-cd9895bd7-8ctnn Total loading time: 0 Render date: 2024-12-26T19:12:05.268Z Has data issue: false hasContentIssue false
  • English
  • Français

THE ENDOGENOUS DETERMINATION OF RETIREMENT AGE AND SOCIAL SECURITY BENEFITS

Published online by Cambridge University Press:  03 July 2012

Francisco Cabo  and
Ana García-González
Francisco Cabo*
Affiliation:
IMUVa, University of Valladolid
Ana García-González
Affiliation:
IMUVa, University of Valladolid
*
Address correspondence to: Francisco Cabo, Departamento Economía Aplicada (Matemáticas). Avenida Valle Esgueva 6, 47011 Valladolid, Spain; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

An aging population in modern societies has put stress on public pension systems. To prevent social security deficits from increasing to unbounded levels of public debt we focus on two policies: reducing the generosity of pension benefits, determined by the government, and postponing the effective retirement age, chosen by employees. An atomistic employee would disregard the effect of his retirement decision on the public debt and would retire as soon as possible. Conversely, an ideal farsighted agency considering all current and future employees would postpone retirement, thereby alleviating the pressure on public debt and allowing a more generous long-run pension. The government may design a proper incentive strategy to induce myopic atomistic decision makers to act nonmyopically. This strategy is a two-part incentive with nonlinear dependence on the stock of public debt. It is credible if deceiving employees slightly adjust their retirement-age decisions to increments in the public debt.

Keywords

Public Pension SystemEffective Retirement AgeDifferential GamesCredibility of Incentive Equilibrium
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 1 , January 2014 , pp. 93 - 113
Copyright
Copyright © Cambridge University Press 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Alesina, Alberto, Perotti, Roberto, and Tavares, José (1998) The political economy of fiscal adjustments. Brookings Paper on Economic Activity 1, 197–266.CrossRefGoogle Scholar
Arvate, Paulo Roberto, Mendes, Marcos, and Rocha, Alexandre (2010) Are voters fiscal conservatives? Evidence from Brazilian municipal elections. Estudos Economicos 40, 67–101.CrossRefGoogle Scholar
Banks, James and Emmerson, Carl (2000) Public and private pension spending: Principles, practice and the need for reform. Fiscal Studies 21, 1–63.CrossRefGoogle Scholar
Brender, Adi (2003) The effect of fiscal performance on local government election results in Israel: 1989–1998. Journal of Public Economics 87, 2187–2205.CrossRefGoogle Scholar
Brender, Adi and Drazen, Allan (2005) Political budget cycles in new versus established democracies. Journal of Monetary Economics 52, 1271–1295.CrossRefGoogle Scholar
Brender, Adi and Drazen, Allan (2008) How do budget deficits and economic growth affect reelection prospects? Evidence from a large panel of countries. American Economic Review 98, 2203–2220.CrossRefGoogle Scholar
Casey, Bernard, Oxley, Howard, Whitehouse, Edward R., Antolín, Pablo, Duval, Romain, and Leibfritz, Willi (2003) Policies for an Ageing Society: Recent Measures and Areas for Further Reform. OECD Economics Department Working paper 369.Google Scholar
Cellini, Roberto and Lambertini, Luca (2007) Time consistent fiscal policies in a Ramsey economy. Mathematical Social Sciences 53, 296–313.CrossRefGoogle Scholar
Dockner, Engelbert, Jørgensen, Steffen, Van Long, Ngo, and Sorger, Gerhard (2000) Differential Games in Economics and Management Science. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Ehtamo, Harri and Hämäläinen, Raimo P. (1993) A cooperative incentive equilibrium for a resource management problem. Journal of Economic Dynamics and Control 17, 659–678.CrossRefGoogle Scholar
Ehtamo, Harri and Hämäläinen, Raimo P. (1995) Credibility of linear equilibrium strategies in a discrete time fishery management game. Group Decision and Negotiation 4, 27–37.CrossRefGoogle Scholar
Heijdra, Ben J. and Romp, Ward E. (2009) Retirement pensions, and ageing. Journal of Public Economics 93, 586–604.CrossRefGoogle Scholar
Jørgensen, Steffen and Zaccour, Georges (2001a) Channel coordination over time: Incentive equilibria and crecibility. Journal of Economic Dynamic and Control 27, 801–822.CrossRefGoogle Scholar
Jørgensen, Steffen and Zaccour, Georges (2001b) Incentive equilibrium strategies and welfare allocation in a dynamic game of pollution control. Automatica 37, 29–36.CrossRefGoogle Scholar
Karp, Larry S. and Lee, In Ho (2003) Time-consistent policies. Journal of Economic Theory 112, 353–64.CrossRefGoogle Scholar
Martín-Herrán, Guiomar and Zaccour, Georges (2005) Credibility of incentive equilibrium strategies in linear-state differential games. Journal of Optimization Theory and Applications 126, 1–23.CrossRefGoogle Scholar
Martín-Herrán, Guiomar and Zaccour, Georges (2009) Credible linear-incentive equilibrium strategies in linear-quadratic differential games. In Pourtallier, Odile, Gaitsgory, Vladimir, and Bernhard, Pierre (eds.), Annals of the International Society of Dynamic Games: Advances in Dynamic Games and Their Applications 10, pp. 1–31. Boston: Birkhäuser.Google Scholar
OECD (2011) Pensions at a glance 2011: Retirement-income systems in OECD and G20 countries (www.oecd.org/els/social/pensions/PAG).Google Scholar
Peltzman, Sam (1992) Voters as fiscal conservatives. Quarterly Journal of Economics 107, 327–361.CrossRefGoogle Scholar
Sánchez-Martín, Alfonso R. (2010) Endogenous retirement and public pension system reform in Spain. Economic Modelling 27, 336–349.CrossRefGoogle Scholar
Whiteford, Peter and Whitehouse, Edward (2006) Pension challenges and pension reform in OECD countries. Oxford Review of Economic Policy 22, 78–94.CrossRefGoogle Scholar
Xie, Danyang (1997) On time inconsistency: A technical issue in Stackelberg differential games. Journal of Economic Theory 76, 412–30.CrossRefGoogle Scholar