Macroeconomic implications of early retirement in the public sector: The case of Brazil

Abstract

In Brazil generous public sector pensions have induced civil servants to retire on average at age 55. In this paper we assess the efficiency gains from eliminating such policy induced early retirement in a two-sector overlapping generations economy. We find the adverse effects of that policy are significant. Specifically, the generosity of public sector pensions which induces civil servants to retire 5 years prematurely (at age 55 rather than at age 60) is often associated with decreases in steady state output (GDP) of almost 3% and welfare losses in the private sector of more than 3% of consumption.