Health, longevity and retirement reform

Abstract

Abstract In this paper, we study alternative retirement reforms designed to achieve fiscal sustainability in the face of demographic change. We are particularly interested in the heterogeneous effects across demographic groups, as improvements in health and longevity have not been uniform across the population. To this end, we develop a dynamic, structural life cycle model of heterogeneous agents who face health, mortality and income risk. We consider the following policy reform measures: (1) increasing the early access age to old-age retirement, (2) raising income taxes, (3) lowering old-age retirement benefits and (4) lowering old-age retirement and disability benefits. We find that, of the considered policies, proportionally lowering old-age retirement and disability benefits results in the highest average welfare for all education categories. It is also the most successful at boosting employment.