Transitioning to a higher retirement age with exponential and quasi-hyperbolic discounters in mixed economies

2020 ◽  
Author(s):  
Sarah Lynne Salvador Daway-Ducanes
Keyword(s):  
Overlapping Generations ◽  
Hyperbolic Discounting ◽  
Welfare Effects ◽  
Retirement Age ◽  
Tax Rate ◽  
Welfare Impacts ◽  
The Social ◽  
Welfare Implications ◽  
Pension Benefits ◽  
Exponential Discounting

Abstract This paper analyses the macroeconomic and welfare effects of a higher retirement age within a dynamic overlapping generations framework, wherein exponential discounting and sophisticated quasi-hyperbolic discounting agents coexist in ‘mixed economies’. The transitional dynamics of economic aggregates depend on the proportion of QHD agents, and the extent to which reducing the social security tax rate mitigates crowding-out effects on savings and enables both lower pension contributions and higher pension benefits. Welfare impacts across agent types and cohorts differ accordingly: QHD agents employ the higher retirement age as a commitment mechanism to mitigate the adverse welfare implications of present-biasedness.

scholarly journals Characterizing the Amount and Speed of Discounting Procedures

2011 ◽  
Vol 2 (2) ◽  
pp. 1-56 ◽  
Author(s):  
Dean T. Jamison ◽  
Julian Jamison
Keyword(s):  
Time Horizon ◽  
Empirical Work ◽  
Hyperbolic Discounting ◽  
Project Evaluation ◽  
Present Value ◽  
Time Horizons ◽  
The Social ◽  
Social Project ◽  
The Individual ◽  
Exponential Discounting

This paper introduces the concepts of amount and speed of a discounting procedure in order to generate well-characterized families of procedures for use in social project evaluation. Exponential discounting sequesters the concepts of amount and speed into a single parameter that needs to be disaggregated in order to characterize nonconstant rate procedures. The inverse of the present value of a unit stream of benefits provides a natural measure of the amount a procedure discounts the future. We propose geometrical and time horizon based measures of how rapidly a discounting procedure acquires its ultimate present value, and we prove these to be the same. This provides an unambiguous measure of the speed of discounting, a measure whose values lie between 0 (slow) and 2 (fast). Exponential discounting has a speed of 1. A commonly proposed approach to aggregating individual discounting procedures into a social one for project evaluation averages the individual discount functions. We point to serious shortcoming with this approach and propose an alternative for which the amount and time horizon of the social procedure are the averages of the amounts and time horizons of the individual procedures. We further show that the social procedure will in general be slower than the average of the speeds of the individual procedures. For potential applications in social project evaluation we characterize three families of two-parameter discounting procedures – hyperbolic, gamma, and Weibull – in terms of their discount functions, their discount rate functions, their amounts, their speeds and their time horizons. (The appendix characterizes additional families, including the quasi-hyperbolic one.) A one parameter version of hyperbolic discounting, d(t) = (1+rt)-2, has amount r and speed 0, and this procedure is our candidate for use in social project evaluation, although additional empirical work will be needed to fully justify a one-parameter simplification of more general procedures.

scholarly journals THE RETURN ON SOCIAL SECURITY WITH INCREASING LONGEVITY

2016 ◽  
Vol 21 (2) ◽  
pp. 462-487 ◽  
Author(s):  
Markus Knell
Keyword(s):  
Working Life ◽  
Social Optimum ◽  
Retirement Age ◽  
Internal Rate Of Return ◽  
Policy Regimes ◽  
Pension Systems ◽  
The Social ◽  
Retirement Decisions ◽  
Pension Benefits ◽  
The Impact

In this paper I study the impact of increasing longevity on pay-as-you-go pension systems. First, I show that increasing longevity increases the internal rate of return. The size of the effect differs for different policy regimes. It is higher for the case where the retirement age is increased to keep the system in balance than for the case where the necessary adjustment is achieved by reducing pension benefits. Second, I study optimally chosen retirement decisions and I show that the socially optimal policy involves a shorter working life than the private optimum. The social optimum can be implemented by the use of a PAYG system that combines an actuarial and a flat pension.

scholarly journals Pension policies in a model with endogenous fertility

2018 ◽  
Vol 19 (1) ◽  
pp. 109-125 ◽  
Author(s):  
GIAM PIETRO CIPRIANI ◽  
FRANCESCO PASCUCCI
Keyword(s):  
Overlapping Generations ◽  
Pension System ◽  
Retirement Age ◽  
Endogenous Fertility ◽  
Contribution Rate ◽  
Negative Effects ◽  
Overlapping Generations Model ◽  
The Social ◽  
Policy Measures ◽  
Set Up

AbstractWe set up an overlapping-generations model with endogenous fertility to study pensions policies in an ageing economy. We show that an increasing life expectancy may not be detrimental for the economy or the pension system itself. On the other hand, conventional policy measures, such as increasing the retirement age or changing the social security contribution rate could have undesired general equilibrium effects. In particular, both policies decrease capital per worker and might have negative effects on the fertility rate, thus exacerbating population ageing.

scholarly journals Coping with Spain's aging: retirement rules and incentives

2009 ◽  
Vol 9 (4) ◽  
pp. 549-581 ◽  
Author(s):  
MARIO CATALÁN ◽  
JAIME GUAJARDO ◽  
ALEXANDER W. HOFFMAISTER
Keyword(s):  
Life Expectancy ◽  
Demographic Transition ◽  
Welfare Effects ◽  
Work Life ◽  
Substitution Effects ◽  
Retirement Age ◽  
Spanish Economy ◽  
Pension Reforms ◽  
Long Run ◽  
Pension Benefits

AbstractThis paper evaluates the macroeconomic and welfare effects of extending the averaging period used to calculate pension benefits in a pay-as-you-go system. It also examines the complementarities between reforms extending the averaging period and those increasing the retirement age under alternative tax policies. The analysis applies a model in the Auerbach-Kotlikoff tradition to the Spanish economy. Extending the averaging period to the entire work life maximizes long-run welfare and limits expenditure pressures at the peak of the demographic shock as much as increasing the retirement age in line with life expectancy. Moreover, during the demographic transition, pension reforms induce intertemporal labor substitution effects that engender aggregate labor cycles.

scholarly journals POSTPONING RETIREMENT AND SOCIAL SECURITY IN A TWO-SECTOR MODEL

2021 ◽  
pp. 1-19
Author(s):  
PARTHA SEN
Keyword(s):  
Steady State ◽  
Social Security ◽  
Capital Accumulation ◽  
Overlapping Generations ◽  
Retirement Age ◽  
Overlapping Generations Model ◽  
Payroll Tax ◽  
Tax Rate ◽  
Sector Model ◽  
State Capital

Pay-as-you-go social security schemes in the Organisation for Economic Co-operation and Development countries are facing solvency problems, as people are living longer and birth rates have declined. Postponing the full retirement age (FRA), when retirees are entitled to full pension, has been proposed as a solution. This effectively lowers the payroll tax rate since pension is paid only in the post-FRA period. In a two-period two-sector overlapping generations model, I show that this shift lowers savings (because a part of the expected old-age income is consumed in the first period), as employment increases. In the transition to the new steady state, capital is decumulated and the wage rate falls. Contrast this with a reduction of the payroll tax rate where the initial old suffer reduced consumption, but the young have higher post-tax income and this spurs capital accumulation.

Welfare Implications of Uncertain Social Security Reform

2020 ◽  
Vol 48 (4) ◽  
pp. 425-466
Author(s):  
Jaeger Nelson
Keyword(s):  
Social Security ◽  
Overlapping Generations ◽  
Welfare Effects ◽  
Policy Uncertainty ◽  
Social Security Reform ◽  
Overlapping Generations Model ◽  
Aggregate Risk ◽  
Highly Sensitive ◽  
Welfare Implications ◽  
Future Policy

Policy uncertainty is a type of aggregate risk that has important economic and welfare implications. In this article, I develop a simple general equilibrium overlapping generations model in which households are uncertain as to the type and timing of an inevitable Social Security reform. I document how households’ expectations over the path of future policy influences their behavior. I find that the economic and welfare effects of policy uncertainty are highly sensitive to households’ beliefs over the path of future policy.

Fertility and labor supply of the old with pay-as-you-go pension and child allowances

2017 ◽  
Vol 18 (1) ◽  
Author(s):  
Hung-Ju Chen ◽  
Koichi Miyazaki
Keyword(s):  
Social Security ◽  
Labor Supply ◽  
Overlapping Generations ◽  
Fertility Rate ◽  
Tax Rates ◽  
Overlapping Generations Model ◽  
Tax Rate ◽  
The Social ◽  
Child Allowances ◽  
The Interest Rate

Abstract We investigate the effects of pay-as-you-go pension and child allowances on fertility, labor supply of the old, and welfare. For this purpose, we analyze a small open overlapping-generations model in which fertility and an old agent’s labor supply (retirement time) are endogenized with pay-as-you-go pension and child allowances. We find that how the pay-as-you-go pension tax rate affects the fertility rate depends on whether an old agent retires. When an old agent fully retires, then the size of the interest rate and fertility rate determine the effect of the pay-as-you-go pension tax rate on the fertility rate. When an old agent works, the pay-as-you-go pension tax rate certainly reduces the fertility rate. In addition, how child allowances affect the fertility rate depends on whether an old agent works. If an old agent retires fully, then an increase in the child allowance tax rate increases the fertility rate. When an old agent works, this is not necessarily true, which suggests that an old agent’s labor status should be taken into account when we evaluate the effects of the social security system on economic variables. In addition, we examine the effect of the social security tax rates on welfare and provide numerical examples.

Reasons for Working and Their Relationship to Retirement Attitudes, Job Satisfaction and Occupational Self-Efficacy of Bridge Employees

2005 ◽  
Vol 61 (1) ◽  
pp. 21-35 ◽  
Author(s):  
Veronica M. Dendinger ◽  
Gary A. Adams ◽  
Jamie D. Jacobson
Keyword(s):  
Job Satisfaction ◽  
Baby Boomers ◽  
Self Efficacy ◽  
Retirement Age ◽  
Bridge Employment ◽  
Reliable Predictor ◽  
The Social ◽  
Social Reason ◽  
The U.S

Although the Baby Boomers are the fastest growing segment of the U.S. population and they are quickly approaching retirement age, research has widely neglected to look at the reasons as to why many of them intend on opting for bridge employment as opposed to completely retiring. This study examined the relationships among four reasons for working (social, personal, financial, and generative) and three attitudinal responses to bridge employment (job satisfaction, retirement attitudes, and occupational self-efficacy). In a sample of 108 recent retirees holding bridge employment positions, it was found that generativity served as a reliable predictor of job satisfaction and attitudes toward retirement, whereas the social reason for work was only a reliable predictor of attitudes toward retirement.

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