The Macroeconomics of Early Retirement

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  • 1 May 2003
    • preprint
      • Published in RePEc
Abstract
Early retirement represents a policy response to the appearance of a mass of redundant middle- aged workers, who were not entitled to a pension transfer in their old age. This policy is distortionary, since it reduces the incentive to accumulate human capital, and thus decreases economic growth. Why was it adopted? We suggest that alternative policies, which do not introduce long-term distortions, but impose a larger cost on the current young generation of workers, were blocked by the political opposition of a coalition of the extreme:\ high income workers, who did not plan to retire early, but sought to reduce the current tax burden, and the low income workers, who expected to retire early and to benefit from the early retirement pension.

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