Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2018:9: Health, Longevity and Pension Reform

Tobias Laun (), Simen Markussen (), Trond Christian Vigtel () and Johanna Wallenius ()
Additional contact information
Tobias Laun: Department of Economics
Simen Markussen: Ragnar Frisch Centre for Economic Research
Trond Christian Vigtel: Ragnar Frisch Centre for Economic Research
Johanna Wallenius: Department of Economics, Stockholm School of Economics,

Abstract: In this paper, we study alternative pension reforms designed to achieve fiscal sustainability in the face of demographic change. We are particularly interested in the heterogeneous effects across demographic groups, as improvements in health and longevity have not been uniform across the population. To this end, we develop a dynamic, structural life cycle model of heterogeneous agents who face health, mortality and income risk. We consider the following policy reform measures: (1) increasing the early access age to pensions, (2) raising income taxes, (3) lowering pension benefits and (4) lowering pension and disability benefits. We find that, of the considered policies, proportionally lowering pension and disability benefits results in the highest average welfare and the lowest degree of inequality. It is also successful at boosting employment, particularly among the less educated.

Keywords: Life cycle; Retirement; Disability insurance; Health

JEL-codes: E24; J22; J26

41 pages, May 8, 2018

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