Working Paper: CEPR ID: DP16420
Authors: Camille Landais; Jonas Kolsrud; Daniel Reck; Johannes Spinnewijn
Abstract: This paper develops and implements a framework that leverages consumptiondata to evaluate the welfare effects of pension reforms. Several countries have reformedtheir pension profiles to incentivize later retirement. Using administrativedata in Sweden, we find that such pension reforms entail substantial consumptionsmoothing costs. On average, individuals retiring later have higher consumptionlevels than those retiring earlier, implying that recent pension reforms redistributedfrom low- to high-consumption households. We show that the differencesin retirement consumption are mostly driven by differential changes in consumptionaround retirement, and also that the marginal propensities to consume arethe lowest for late retirees. Accounting for selection on health and life expectancyfurther increases the redistributive cost of recent reforms. The cost of incentivizinglater retirement is, however, lowest between the early and normal retirementage, where we document a striking non-monotonicity in consumption levels. Wefind similar patterns in consumption data from other countries, including the nonmonotonicity,suggesting our findings are not unique to Sweden.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pension reforms incentivizing later retirement (J26) | higher consumption levels among retirees (J26) |
| higher consumption levels among retirees (J26) | redistribution effect from lower to higher consumption households (H23) |
| changes in consumption dynamics around retirement (D15) | differences in retirement consumption (J26) |
| late retirees (J26) | lowest marginal propensities to consume (D11) |
| cost of incentivizing later retirement (J26) | lowest between early and normal retirement ages (J26) |
| selection into early retirement (J26) | influenced by health and life expectancy (I14) |
| earlier retirees (J26) | face worse health outcomes (I14) |
| welfare costs associated with pension reforms (J32) | amplified by worse health outcomes of earlier retirees (J26) |