An evaluation of the life cycle effects of minimum pensions on retirement behavior

• Published in: Journal of applied econometrics (Chichester, England) Vol. 22; no. 5; pp. 923 - 950
• Main Authors: Jiménez-Martín, Sergi, Sánchez Martín, Alfonso R.
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01.08.2007; John Wiley & Sons; Wiley Periodicals Inc
• Subjects: Age; Early retirement; Economic models; Employee pension plans; Life cycles; Modeling; Old age benefits; Parameter estimation; Pension contributions; Pension plans; Pension schemes; Pensions; Public economics; Public pensions; Retirement; Retirement age; Social economics; Social security; Social security financing; Spain; Studies; Welfare economics; Spain
• ISSN: 0883-7252; 1099-1255
• DOI: 10.1002/jae.956

In this paper we explore the effects of the minimum pension program on welfare and retirement in Spain. This is done with a stylized life cycle model which provides a convenient analytical characterization of optimal behavior. We use data from the Spanish Social Security to estimate the behavioral parameters of the model and then simulate the changes induced by the minimum pension in aggregate retirement patterns. The impact is substantial: there is a threefold increase in retirement at 60 (the age of first entitlement) with respect to the economy without minimum pensions, and total early retirement (before or at 60) is almost 50% larger.