nep-age New Economics Papers
on Economics of Ageing
Issue of 2008‒05‒17
five papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Statutory Retirement Age and Lifelong Learning By Thomas Gries; Stefan Jungblut; Tim Krieger; Henning Meier
  2. A Note on Defining the Dependent Population Based on Age By Racelis, Rachel; Salas, J.M. Ian S.
  3. Investing for the Old Age: Pensions, Children and Savings By Galasso, Vincenzo; Gatti, Roberta; Profeta, Paola
  4. The Impact of Retirement Benefits on Consumption and Saving in South Africa By Vasco C Nhabinde; Niek J Schoeman
  5. Pharmaceutical innovation and the longevity of Australians: a first look By Frank R. Lichtenberg; Gautier Duflos

  1. By: Thomas Gries (University of Paderborn); Stefan Jungblut (University of Paderborn); Tim Krieger (University of Paderborn); Henning Meier (University of Paderborn)
    Abstract: As societies age, pension reforms become a central issue. One proposition is to extend worklife. However, due to the endogenous depreciation of human capital in many countries the effective retirement age is even below the present statutory retirement age. We analyze this effect in a putty-putty human capital vintage model where the economic retirement age is endogenous. While a higher rate of technical progress will shorten working life, effects of international competition and outsourcing are determined by the terms of trade. As education is expected to solve the problem of too rapidly depreciating human capital we introduce a two stage education system with initial schooling and lifelong learning. However, not even lifelong learning is able to align the economic with the statutory retirement.
    Keywords: lifelong learning, retirement, unemployment, education system
    JEL: J26 O33 J64
    Date: 2008–05
  2. By: Racelis, Rachel; Salas, J.M. Ian S.
    Abstract: <p>Dependent population is defined as that part of the population that does not work and relies on others for the goods and services they consume. In practice, specific population age groups have in their entirety been categorized as dependent population, even while the definition may not necessarily apply to every individual in the population with the indicated ages. In general those categorized as dependents include the children and the elderly. The rest of the population constitutes the working age population.</p> <p>The delineation of any boundary for children and for working ages varies across countries and studies, has tended to be discretionary, and thus appears arbitrary. This paper shows that the dependent population(s) defined, based on a given set of age cut-offs, are generally heterogeneous in terms of personal attributes particularly in terms of indicators of dependency or nondependency. Thus, the population defined by any given age boundaries may satisfy some indicators of dependency but not others. That is, the age boundary delineated using one dependency indicator, as reference, could be found unsatisfactory when assessed based on a different indicator. Those considering the use of any defined set of age boundaries to identify the dependent populations, whether for research or for the implementation of support programs, should first assess the appropriateness of the boundaries for the intended use. Identifying the dependency indicators relevant to the intended use would facilitate the assessment.</p>
    Keywords: labor force participation, National Transfer Accounts, lifecycle deficit, population dependency, household headship, financing consumption
    Date: 2008
  3. By: Galasso, Vincenzo; Gatti, Roberta; Profeta, Paola
    Abstract: In the last century most countries have experienced both an increase in pension spending and a decline in fertility. We argue that the interplay of pension generosity and development of capital markets is crucial to understand fertility decisions. Since children have traditionally represented for parents a form of retirement saving, particularly in economies with limited or non-existent capital markets, an exogenous increase of pension spending provides a saving technology alternative to children, thus relaxing financial (saving) constraints and reducing fertility. We build a simple two-period OLG model to show that an increase in pensions is associated with a larger decrease in fertility in countries in which individuals have less access to financial markets. Cross-country regression analysis supports our result: an interaction between various measures of pension generosity and a proxy for the development of financial markets consistently enters the regressions positively and significantly, suggesting that in economies with limited financial markets, children represent a (if not the only) way for parents to save for old age, and that increases in pensions amount effectively to relaxing these constraints.
    Keywords: fertility; financial markets; intergenerational transfers; PAYG pension systems
    JEL: H55 J13
    Date: 2008–05
  4. By: Vasco C Nhabinde (Department of Economics, University of Pretoria); Niek J Schoeman (Department of Economics, University of Pretoria)
    Abstract: In this paper we empirically analyse the impact of retirement benefits on consumption and personal saving in South Africa using the Feldstein 1974 specification and procedure. By using a basic extended Ando-Modigliani life cycle model we show that the introduction of retirement programs crowds out discretionary household saving and consumption of contributors to such programs. There against, benefits paid by these programs contribute positively to consumption with a concomitant decline in the national pool of savings. However, taxes on retirement benefits affect the discounted value thereof and any change in such tax policy would therefore affect the saving behaviour of contributors in the opposite direction of the tax policy. We use time series data on consumption per capita, disposable labour-income per capita and pension and benefit payments from provident funds both public and privately managed. Using OLS, we find that estimates of retirement benefits are robust when regressed with the per capita government deficit and per capita durable consumption. The estimates are also stable when regressed with the full Barro specification (which includes the per capita government deficit, per capita durable consumption expenditure and the product of unemployment and per capita disposable income).
    Keywords: Social Security, Pension Funds, Retirement, Taxes, Consumption, Saving, South Africa, Gender, Productivity
    JEL: H H5 H55
    Date: 2008–05
  5. By: Frank R. Lichtenberg; Gautier Duflos
    Abstract: We examine the impact of pharmaceutical innovation on the longevity of Australians during the period 1995-2003. Due to the government's Pharmaceutical Benefits Scheme, Australia has much better data on drug utilization than most other countries. We find that mean age at death increased more for diseases with larger increases in mean drug vintage. The estimates indicate that increasing the mean vintage of drugs by 5 years would increase mean age at death by almost 11 months. The estimates also indicate that using newer drugs reduced the number of years of potential life lost before the ages of 65 and 70 (but not before age 75). During the period 1995-2003, mean age at death increased by about 2.0 years, from 74.4 to 76.4. The estimates imply that, in the absence of any increase in drug vintage, mean age at death would have increased by only 0.7 years. The increase in drug vintage accounts for about 65% of the total increase in mean age at death. We obtain a rough estimate of the cost per life-year gained from using newer drugs. Under our assumptions, using newer drugs (increasing drug vintage) increased life expectancy by 1.23 years and increased lifetime drug expenditure by $12,976; the cost per life-year gained from using newer drugs is $10,585. An estimate made by other investigators of the value of a statistical Australian life-year ($70,618) is 6.7 times as large as our estimate of the cost per life-year gained from using newer drugs. We discuss several reasons why our estimate of the cost per life-year gained from using newer drugs could be too high or too low.
    JEL: H51 I12 J11 O33 O56
    Date: 2008–05

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