hero working papers

Postponing Retirement: the Political Push of Aging

Number: 315
Year: 2006
Author(s): Vincenzo Galasso
Conventional economic wisdom suggests because of the aging process, social security
systems will have to be retrenched. In particular, retirement age will have to be largely
increased. Yet, is this policy measure feasible in OECD countries? Since the answer
belongs mainly to the realm of politics, I evaluate the political feasibility of postponing
retirement under aging in France, Italy, the UK, and the US. Simulations for the year
2050 steady state demographic, economic and political scenario suggest that retirement
age will be postponed in all countries, while the social security contribution rate will
rise in all countries, but Italy. The political support for increasing the retirement age
stems mainly from the negative income effect induced by aging, which reduces the
profitability of the existing social security system, and thus the individuals net social
security wealth.

Keywords: political equilibria, aging, postponing retirement
JEL codes: H53, H55, D72