Macroeconomic Implications of Early Retirement in the Public Sector: The Case of Brazil

Abstract

In Brazil, generous public sector pensions have induced civil servants to retire on average at age 55. In this paper we use an OLG model to assess the effects of such policy induced early retirement on capital accumulation and long-run income levels. We calibrate the model to data from Brazil and then conduct policy experiments changing the generosity of (early) public sector pensions. We find that changes in the generosity of public sector pensions which induce civil servants to retire 10 years prematurely (at age 55 rather than at age 65) are associated with decreases of steady state private sector output of over 4 percent.