Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162310
Authors: 
Garcia-Gomez, Pilar
Galama, Titus J.
van Doorslaer, Eddy
Lopez-Nicolas, Angel
Year of Publication: 
2017
Series/Report no.: 
Tinbergen Institute Discussion Paper 17-044/V
Abstract: 
We present a theory of the relation between health and retirement that generates testable predictions regarding the interaction of health, wealth and financial incentives in retirement decisions. The theory predicts (i) that wealthier individuals (compared to poorer individuals) are more likely to retire for health reasons(affordability proposition), and (ii) that health problems make older workers more responsive to financial incentives encouraging retirement (reinforcement proposition). We test these predictions using administrative data on older employees in the Dutch healthcare sector for whom we link adverse health events, proxied by unanticipated hospitalizations, to information on retirement decisions and actual incentives from administrative records of the pension funds. Exploiting unexpected health shocks and quasi-exogenous variation in nancial incentives for retirement due to reforms, we account for the endogeneity of health and financial incentives. Making use of the actual individual pension rights diminishes downward bias in estimates of the effect of pension incentives. We find support for our affordability and reinforcement propositions. Both propositions require the benefits function to be convex, as in our data. Our theory and empirical findings highlight the importance of assessing financial incentives for their potential reinforcement of health shocks and point to the possibility that differences in responses to financial incentives and health shocks across countries may relate to whether the benefit function is concave or convex.
Subjects: 
pensions
health
retirement
disability
health investment
lifecycle model
health capital
JEL: 
C33
D91
H55
I10
I12
J00
J24
J26
J45
D91
Document Type: 
Working Paper

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