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Transitioning to a higher retirement age with exponential and quasi-hyperbolic discounters in mixed economies

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  • Sarah Lynne Salvador Daway-Ducanes

Abstract

This paper analyses the macroeconomic and welfare effects of a higher retirement age within a dynamic overlapping generations framework, wherein exponential discounting and sophisticated quasi-hyperbolic discounting agents coexist in ‘mixed economies’. The transitional dynamics of economic aggregates depend on the proportion of QHD agents, and the extent to which reducing the social security tax rate mitigates crowding-out effects on savings and enables both lower pension contributions and higher pension benefits. Welfare impacts across agent types and cohorts differ accordingly: QHD agents employ the higher retirement age as a commitment mechanism to mitigate the adverse welfare implications of present-biasedness.

Suggested Citation

  • Sarah Lynne Salvador Daway-Ducanes, 2021. "Transitioning to a higher retirement age with exponential and quasi-hyperbolic discounters in mixed economies," Oxford Economic Papers, Oxford University Press, vol. 73(2), pages 744-770.
    • Handle: RePEc:oup:oxecpp:v:73:y:2021:i:2:p:744-770.
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    File URL: http://hdl.handle.net/10.1093/oep/gpaa010
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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