Conde-Ruiz, Jose Ignacio Galasso, Vincenzo Profeta, Paola
Year of Publication:
CESifo Working Paper 1571
We provide a long-term perspective on the individual retirement behaviour and on the future of retirement. In a Markovian political economic theoretical framework, in which incentives to retire early are embedded, we derive a political equilibrium with positive social security contribution rates and early retirement. Aging has two opposite effects: it leads to lower taxes and fewer (early) retirees, while a poorer median voter will push for higher contributions. The model highlights the existence of crucial income effects: a decrease of the income of young people will induce them to postpone retirement and to vote for less social security.
pensions income effect tax burden politico-economic Markovian equilibrium