An evaluation of the life cycle effects of minimum pensions on retirement behavior

In this paper we explore the effects of the minimum pension program on welfare and retirement in Spain. This is done with a stylized life cycle model which provides a convenient analytical characterization of optimal behavior. We use data from the Spanish Social Security to estimate the behavioral parameters of the model and then simulate the changes induced by the minimum pension in aggregate retirement patterns. The impact is substantial: there is a threefold increase in retirement at 60 (the age of first entitlement) with respect to the economy without minimum pensions, and total early retirement (before or at 60) is almost 50% larger. Copyright © 2007 John Wiley & Sons, Ltd.