Early retirement disincentives: Effectiveness and implications for distribution and welfare
This paper evaluates the effectiveness of early retirement disincentives that have been introduced in Germany and investigates the distributional and welfare implications. Therefore, we set up a detailed model of the German social security and tax system with special focus on the PAYG-pension system. Building on the fact that the institutional changes were phased in - impacting birth cohorts to a different degree - we are able to estimate the parameters of a structural dynamic retirement model. This enables us to analyze whether and to what extent disincentives are able to steer retirement behavior. The estimates are based on high quality administrative data. We also compute changes in Gini coefficients of expected remaining lifetime consumption as well as equivalent and compensating variations to assess welfare effects. Furthermore, we discuss if recently introduced subsidies for private old age provisions are adequate to compensate the associated welfare losses.