Abstract:
Elderly workers in developing countries face certain frictions, such as credit constraints, in their retirement decisions that may not be as common among their counterparts in the developed world, and these concerns may lead workers to work more or less than their preferred number of years. In this study, I firstly use regression discontinuity methods to show that a large fraction of urban male heads of households in Brazil (roughly 45%) react contemporaneously to pension eligibility by retiring. Because retirement is not required to receive the pension and because the return to working does not change discontinuously at the eligibility cutoff, workers should not react contemporaneously unless optimization frictions, such as credit constraints, are at work. Secondly, I show that those in demographic groups more likely to be credit constrained are more reactive to pension eligibility. Thirdly, I develop a model of retirement decisions that explores how pensions in the face of credit constraints can influence such decisions, and I use this model to estimate bounds for the welfare costs these credit constraints may be imposing through the disutility of workers supplying excess labor.