nep-age New Economics Papers
on Economics of Ageing
Issue of 2007‒10‒20
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Population Aging, Foreign Direct Investment, and Tax Competition By Ronald B Davies; Robert R Reed III
  2. Economic Aging and Demographic Change By Dominik Grafenhofer; Christian Jaag; Christian Keuschnigg; Mirela Keuschnigg
  3. Simulating the future of the Swedish baby-boom generations By Klevmarken, N. Anders; Bolin, Kristian; Eklöf, Matias; Flood, Lennart; Fransson, Urban; Hallberg, Daniel; Höjgård, Sören; Lindgren, Björn; Mitrut, Andrea; Lagergren, Mårten
  4. Transferencias intergeneracionales en Uruguay By Marisa Bucheli; Rodrigo Ceni; Cecilia González
  5. The generation gap: relative earnings of young and old workers in Italy By Alfonso Rosolia; Roberto Torrini
  6. Housing Price Volatility and Downsizing in Later Life By James Banks; Richard Blundell; Zoë Oldfield; James P. Smith
  7. The Drift of Public Spending towards the Elderly: A Generational Analysis of the Trend of Public Policies in Spain By Guillem López; Ana Mosterin
  8. Testing Happiness Hypothesis among the Elderly By Alejandro Cid; Daniel Ferrés; Máximo Rossi

  1. By: Ronald B Davies (University of Oregon and Oxford University Centre for Business Taxation); Robert R Reed III (University of Kentucky)
    Abstract: This paper studies the role of population aging for foreign direct investment and the strategic taxation of capital. Importantly, our theoretical model suggests that the labor market implications of aging differ from the financial market aspects. While population aging may be associated with a lower capital stock in the home country and less foreign direct investment, the effects through the labor market and employment tend to generate larger outbound capital flows. To quantify these aspects, we conduct regression analysis to empirically document how population aging affects FDI. To be specific, we use data on both US inbound and outbound FDI. Notably, the estimates between the US and other developed countries conform quite closely to the predictions of our theory. We conclude by studying the strategic taxation of capital. In particular, we examine this issue in light of the fiscal burden associated with older populations. In contrast to previous work on tax competition, we incorporate that old-age transfer programs are generally funded by labor taxes. In this manner, our framework introduces new insights regarding the incentives for governments to restrict capital outflows since doing so increases the labor income tax base used for intergenerational transfers.
    Keywords: Population Aging, Fiscal Policy, Foreign Direct Investment
    JEL: F20 H87
    Date: 2007
  2. By: Dominik Grafenhofer; Christian Jaag; Christian Keuschnigg; Mirela Keuschnigg
    Abstract: This paper presents a generalized model of overlapping generations with economic aging of households. Economic age is defined as a set of personal attributes such as earnings potential and tastes that are characteristic of a person's position in the life-cycle. We separate the concepts of economic age and time since birth in assuming only a small number of different states of age. Agents sharing the same economic characteristics are aggregated analytically to a low number of age groups. The model thus allows for a very parsimonious approximation of life-cycle differences in earnings, wealth and consumption. As an illustration, we quantitatively apply the model to study the impact of demographic change.
    Keywords: Overlapping Generations, Aging, Demographic Change, Life-cycle
    JEL: D58 D91 H55 J21
    Date: 2007–09
  3. By: Klevmarken, N. Anders (Department of Economics); Bolin, Kristian (LUCHE); Eklöf, Matias (Department of Economics); Flood, Lennart (Department of Economics); Fransson, Urban (Göteborg University and IBF); Hallberg, Daniel (Department of Economics); Höjgård, Sören (LUCHE); Lindgren, Björn (LUCHE); Mitrut, Andrea (Department of Economics,); Lagergren, Mårten (Stockholm Gerontology Research Center)
    Abstract: For the purpose of studying the consequences of the ageing of the Swedish population a group of scientists have enlarged the microsimulation model SESIM - originally developed at the Swedish Ministry of Finance - with modules that simulate health status, take up of sickness benefits, retirement, the utilization of health care and social care and the dynamics of the income and wealth distributions. This paper motivates and reviews the structure of these modules with a focus on problems and solutions. It also summarizes the main results of the simulations. A complete description of the models and results are forthcoming in a volume included in the Elsevier series Contributions to Economic Analysis.
    Keywords: Microsimulation; Ageing; Retirement; Health status; Health care; Social care; Distribution of Income; Distribution of Wealth; Poverty
    JEL: C15 C50 D10 D31 H24 H31 H55 I12 I32 J10 J22 J26 R21 R23
    Date: 2007–06–15
  4. By: Marisa Bucheli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Rodrigo Ceni (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Cecilia González (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: The aim of this paper is to present an overall picture of the 1994 estimations of the economic flows per capita by age profile in Uruguay, focusing on the transfers between ages. People consume during the whole of their lives, but labor income is concentrated in the prime ages. In fact, in childhood and for the elderly, consumption is below labor income. These age groups have a life cycle deficit, which is supported by public and private transfers and asset-based reallocations from middle-aged people. The different account profiles (public and private consumption, labor income, public and private transfers, asset-based reallocation) are estimated using micro-data from the Household Survey. The totals of these accounts are consistent with the NIPA.
    Keywords: intergenerational transfers, generational accounts
    JEL: J10
    Date: 2007–07
  5. By: Alfonso Rosolia (Banca d’Italia); Roberto Torrini (Banca d’Italia)
    Abstract: We describe the evolution of the relative earnings of young male workers and the evolution of the age-earnings profiles across cohorts in the last three decades. We draw on administrative records to document a significant deterioration of entry wages over the 1990s in the presence of basically stable experience profiles. We supplement the analysis with the Bank of Italy's Survey on Household Income and Wealth and show that the wage gap between younger and older workers widened in the 90s for all levels of educational attainment. These developments are not accounted for by changes in relative skill-age labor supplies or in other potential socio-demographic determinants of wages. We argue that they were probably the result of partial labor market reforms that generated a dual labor market along the age dimension, opening a gap between the earnings of old incumbent workers and those of new labor market entrants.
    Keywords: entry wages, relative wages, cohort effects, labor market reforms
    JEL: J31
    Date: 2007–09
  6. By: James Banks; Richard Blundell; Zoë Oldfield; James P. Smith
    Abstract: In this paper, we modeled several types of housing transitions of the elderly in two countries -- Britain and the United States. One important form of these transitions involves downsizing of housing consumption, the importance of which among older households is still debated. This downsizing takes multiple forms, including reductions in the number of rooms per dwelling and the value of the home. There is also evidence that this downsizing is greater when house price volatility is greater and that American households try to escape housing price volatility by moving to places that are experience significantly less housing price volatility. Our comparative evidence in suggests that there is less evidence of downsizing in Britain. Our results indicate that housing consumption appears to decline with age in the US, even after controlling for the other demographic and work transitions associated with age that would normally produce such a decline. No such fall in housing consumption is found in Britain, largely because British households are much more likely to stay in their original residence.
    JEL: D12 D91
    Date: 2007–10
  7. By: Guillem López; Ana Mosterin
    Abstract: The tendency for public welfare spending to be increasingly aimed at the elderly has been pointed out for the US and other developed countries. While population ageing is a common trend, it is not obvious why the shift in spending exceeds the trend in ageing, or why per capita spending on the elderly increases. We show that this is the case in Spain, identify the losers from this development, discuss the policies that underlie this trend, and propose adjustments based on Musgrave’s fixed proportions rule as an inter-generationally fair distribution.
    Keywords: Intergenerational equity, Musgrave’s rule, Spanish social policy and ageing
    JEL: I32 I38 H53 H55 J14
    Date: 2007–10
  8. By: Alejandro Cid (Departamento de Economía, Universidad de Montevideo); Daniel Ferrés (Departamento de Economía, Universidad de Montevideo); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: A growing strand of economic literature focuses its attention on the relationship between happiness levels and various individual and socioeconomic variables. Recent studies analyze the impact of income, marital status, health, educational levels and other socioeconomic variables on satisfaction with life. A large majority of these studies limit their attention to industrialized countries. In our work, we analyze data for a group of individuals living in a Latin American country (Uruguay) with age 60 or older. We use a rich data set that allows us to test different happiness hypothesis employing four methodological approaches. We find that older people in Uruguay have a tendency to report themselves happy when they are married, when they have higher standards of health and when they earn higher levels of income or they feel their income is suitable for their standard of living. On the contrary, they report lower levels of happiness when they live alone and when their nutrition is insufficient. We also find that education has no clear impact on happiness. We think that our study is an initial contribution to the study of those factors that can explain happiness among the elderly in Latin American countries. Future work will focus on enhanced empirical analysis and in extending our study to other countries.
    Keywords: Happiness, Health, Family, Censored Econometric Models, Semiparametric Methods, Treatment Evaluation
    JEL: C14 C24 I10 J12
    Date: 2007–10

This nep-age issue is ©2007 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.