nep-age New Economics Papers
on Economics of Ageing
Issue of 2008‒04‒12
five papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The trajectory of wealth in retirement By David A. Love; Michael G. Palumbo; Paul A. Smith
  2. Demographic Change, Pension Reform and Redistribution in Spain By Alfonso Sánchez; VirginiaSánchez Marcos
  3. Labour Market Responses of survival pensioners: estimating a labour supply model and predicting the effect of the reform By André Decoster; Kristian Orsini; Gut Van Camp
  4. Tax-benefits reforms and the labor market: evidence from Belgium and other EU countries By Kristian Orsini
  5. Costs and Benefits of Elderly Prescription Drug Coverage: Evidence from Veterans’ Health Care By Melissa Boyle

  1. By: David A. Love; Michael G. Palumbo; Paul A. Smith
    Abstract: As the baby boomers begin to retire, a great deal remains unknown about the evolution of wealth toward the end of life. In this paper, we develop a new measure of household resources that converts total financial, nonfinancial, and annuitized assets into an expected annual amount of wealth per person. We use this measure, which we call "annualized comprehensive wealth," to investigate spend-down behavior among older households in the Health and Retirement Study. Our analysis indicates that, in (real) dollar terms, the median household’s wealth declines more slowly than its remaining life expectancy, so that real annualized wealth actually tends to rise with age over retirement. Comparing the estimated age profiles for annualized wealth with profiles simulated from several different life cycle models, we find that a model that takes into account uncertain longevity, uncertain medical expenses, and (for higher-income retirees) intended bequests lines up best with the HRS data.
    Date: 2008
  2. By: Alfonso Sánchez; VirginiaSánchez Marcos
    Abstract: Recent demographic changes have spurred pension reforms aimed at restoring the financial sustainability of PAYG systems. In Spain, the most significant reforms were undertaken in 1997 and in2002, entailing an increase in the length of the averaging period in the pension formula, an increase in the penalties for early retirement and for retirement with short contributive records, a bonus for retirement after the age of 65,and a change in the eligibility conditions. In this paper we use an Applied General Equilibrium model populated by two-earners house holds to evaluate the redistributive impact of the pension system and the financial and welfare consequences of these reforms on households that differ in their education, region of residence and year of birth. The initial redistribution is assessed by comparing the internal rate of return provided to different households. We find that they vary considerable depending on education and cohort. Regarding the reforms, we find an increase in the implicit debt of the pension system after the reforms, and important changes in welfare. Households up to secondary education born between 1935 and 1975 are predicted to benefit from the reform, while the welfare of younger cohorts will be hit by higher taxes and unfavourable macroeconomic changes.
    Date: 2008–04
  3. By: André Decoster; Kristian Orsini; Gut Van Camp
    Abstract: In this paper we use a sample of administrative data coming from the `Dataware-house labour market and social protection' and the microsimulation model MIMOSIS to assess the labour supply effects of a reform of the rules for cumulating labour income with survival pension as proposed in the Generations Pact. In a first step we estimate a standard discrete choice labour supply model for several sub groups. Subsequently we model the proposed reform in the tax and benefit rules and we predict the change in desired labour supply of the targeted group. The reform has a significant positive effect on the labour supply of widows, but the effects are quite weak amongst the survivor pensioner with very low benefit, i.e. the group that was originally thought to benefit the most from the reform.
    Keywords: Tax-benefit Systems { Microsimulation { Household Labour Supply
    JEL: C25 D31 H21 H23 H24 H31 J22
    Date: 2008–03
  4. By: Kristian Orsini
    Abstract: During the last decade, several EU countries have tried to tackle unemployment and low activity rates through extensive tax cuts. In an effort to encourage the taking up of work – especially amongst the less productive workers – policymakers have shown increasing interest in targeted tax and social security contribution rebates as well as in benefits conditional on being in employment. This paper surveys recent tax-benefit reforms in Germany, the Netherlands, Italy, the UK, France and Belgium, focussing in particular on the reforms carried out in the latter. The potential labor supply effect of the Belgian reforms are assessed via a discrete hours labor supply model. The results are then compared to similar evaluations of reforms implemented in the aforementioned countries. Results suggest than: (i) generalized tax cut are not always effective in stimulating labor supply; (ii) in several central continental Europe, social security contributions play a major role in determining the incentives to take up work; (iii) joint assessment of income for both purposes of taxation and benefit eligibility has unambiguous negative effects on the labor supply of secondary earners (i.e. mostly women); (iv) targeted reductions in taxes and social security contributions, as well as benefits conditioned on employment are effective means to promote employment, but (v) efficient design of these policies is of greatest importance in order to counter potential negative incentive effects on the population already in employment.
    Keywords: Tax-benefit Systems – Microsimulation – Household Labour Supply – Multinomial Logit.
    JEL: D31 H21 H23 H24 H31 J22
    Date: 2008–03
  5. By: Melissa Boyle (Department of Economics, College of the Holy Cross)
    Abstract: This study tests the impact of a public prescription benefit on Medicare-eligible veterans, utilizing a mid-1990s benefit change in the VA health care system. Using data from the Medicare Current Beneficiary Survey, I compare prescription spending and utilization, as well as use of other health services and health outcomes for veterans and non-veterans before and after the VA insurance change. Results show that receipt of a publicly-provided prescription benefit leads to an increase in spending on prescriptions, and simultaneously, a decrease in spending on other medical services. On average, every $1 increase in drug spending is associated with a $6.50 decrease in other medical spending, and this change is accompanied by measured improvements in the health of benefit recipients. The benefit appears to accrue mainly to low-income and disabled individuals who typically have higher-than-average medical expenses, and are also more likely to experience substantial welfare gains from the relative income increase associated with the reduction (to zero) in the price of prescription drugs.
    Keywords: Medicare, prescription drugs, elderly, veteran, VA healthcare
    JEL: I1 H51
    Date: 2008–04

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