The Economic Consequences of Working While Receiving a Full Pension

Rezumat

This paper investigates the economic consequences of working while receiving a full pension (WRFP). We find that WRFP has crowding out effect on savings of working period and crowding in effect on savings of WRFP period. We show that a unique nontrivial steady-state per capita capital stock of the dynamic system exists and increasing the length of WRFP period and social security contribution rate would increase the speed of capital accumulation reaching its optimal state. The effect of WRFP on welfare gains in the long run is ambiguous and is determined by the elasticity of capital in the two-period overlapping generations (OLG) model, whereas it depends not only on the elasticity of capital but also on the length of WRFP in the three-period OLG model. On the whole, although WRFP has an incentive effect on household agents, welfare losses arisen from its negative externalities exceed welfare gains.