The Department of Economics invites you to a Macro, Risk and Sustainability Seminar with Alina Bartscher, FSFM Frankfurt School of Finance.
If you have any questions regarding the seminar, please contact the seminar organizers Jonna Olsson or Camilla Nesfossen Hopsdal
In most countries, retirement wealth is relatively illiquid due to early withdrawal penalties. While policymakers face a trade-off between flexibility and commitment, there is no consensus on the optimal solution to this problem. Exploiting administrative tax data and a natural experiment from Denmark, we document how individuals react to an exogenous reduction in the early withdrawal penalty. Moreover, we show how individuals use early withdrawal from pension accounts to smooth out the financial consequences of negative life events like unemployment. While the empirical results confirm the benefits of flexibility in case of a negative life event, they also suggest that households may be tempted to spend instead of saving for retirement if the penalty is too low. We use a life-cycle model to give a structural interpretation to the data and evaluate alternative policies to optimally balance the trade-off between flexibility and commitment.