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Effectiveness of Early Retirement Disincentives: Individual Welfare, Distributional and Fiscal Implications

Discussion Papers 1639, 30 S.

Timm Bönke, Daniel Kemptner, Holger Lüthen


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Published in: Labour Economics 51 (2018), S. 25-37


In aging societies, information on how to reform pension systems is essential to policy makers. This study scrutinizes effects of early retirement disincentives on retirement behavior, individual welfare, pensions and public budget. We employ administrative pension data and a detailed model of the German tax and social security system to estimate a structural dynamic retirement model. We find that retirement behavior is strongly influenced by the level of disincentives. Further, disincentives come at the cost of increasing inequality and individual welfare losses. Still, net public returns are about three times as high as monetarized individual welfare losses. Our estimates also suggest that similar levels of net public returns, if achieved by indiscriminating pension cuts, are associated with individual welfare losses that are more than twice as high.

Timm Bönke

Co-Head in the Macroeconomics Department

Holger Lüthen

Research Associate in the German Socio-Economic Panel study Department

Daniel Kemptner

Research Associate in the Education and Family Department

JEL-Classification: C61;H55;J26
Keywords: dynamic discrete choice, retirement, tax and pension system, pension reform
Frei zugängliche Version: (econstor)