nep-age New Economics Papers
on Economics of Ageing
Issue of 2009‒02‒28
thirteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. What Explains Fertility? Evidence from Italian Pension Reforms By Billari, Francesco C.; Galasso, Vincenzo
  2. Early cessation of activity in the labour market: impact of supply and demand factors By Güngör Karakaya
  3. Long-term care: Regional disparities in Belgium By Güngör Karakaya
  4. Sustaining Growth in Korea by Reforming the Labour Market and Improving the Education System By Randall S. Jones; Masahiko Tsutsumi
  5. Population Ageing and Structural Adjustment By James Giesecke; G.A. Meagher
  6. Voting on Parametric Reforms of the Pay-As-You-Go Pension System By Brasil Gondim, João Luis; Casamatta, Georges
  7. Population, Pensions and Endogenous Economic Growth By Heer, Burkhard; Irmen, Andreas
  8. The 60es turnaround as a test on the causal relationship between sociability and happiness By Leonardo Becchetti; Elena Giachin Ricca; Alessandra Pelloni
  9. Fiscal Sustainability and Demographics - Should We Save or Work More? By Andersen, Torben M
  10. Reforming Pensions in Europe: Economic Fundamentals and Political Factors By Ondřej Schneider
  11. Policies for Healthy Ageing: An Overview By Howard Oxley
  12. Where Would You Turn For Help? Older Adults’ Knowledge and Awareness of Community Support Services By Margaret Denton; Jenny Ploeg; Joseph Tindale; Brian Hutchison; Kevin Brazil; Noori Akhtar-Danesh; Monica Quinlan
  13. Reforming the Tax System in Korea to Promote Economic Growth and Cope with Rapid Population Ageing By Randall S. Jones

  1. By: Billari, Francesco C.; Galasso, Vincenzo
    Abstract: Why do people have kids in developed societies? We propose an empirical test of two alternative theories - children as 'consumption' vs. 'investment' good. We use as a natural experiment the Italian pension reforms of the 90s that introduced a clear discontinuity in the treatment across workers. This policy experiment is particularly well suited, since the 'consumption' motive predicts lower future pensions to reduce fertility, while the 'old-age security' to increase it. Our empirical analysis identifies a clear and robust positive effect of less generous future pensions on post-reform fertility. These findings are consistent with 'old-age security' even for contemporary fertility.
    Keywords: altruism; fertility; old-age security; public pension systems
    JEL: D64 H55 J13
    Date: 2008–10
  2. By: Güngör Karakaya (Université Libre de Bruxelles, Dulbéa)
    Abstract: The main objective of this paper is to analyze the problem of population ageing in terms of the cessation of professional activity (and especially premature labour market withdrawals) in order to provide the various public and private administrations active in these fields with some food for thought. Results show that employer-driven obligation to stop working (owing to business closure, redundancy, dismissal, early retirement, etc.), marital status (married/widowed) and health status are the main reasons for the premature cessation of activity common to all four countries studied (Belgium, Finland, the Netherlands and the United Kingdom), while the desire to retire from the labour market or live off private wealth (voluntary cessation) has a significant effect only for Belgium and the Netherlands. However, the impact of this reason on the retirement age is much lower than that of departure enforced by the employer (2 to 3 times lower in these two countries).
    Keywords: Early retirement, Retirement, Demographic changes
    JEL: H55 J26 O15
    Date: 2009–02
  3. By: Güngör Karakaya (Université Libre de Bruxelles, Dulbéa)
    Abstract: In this paper we analyze the problem of population ageing in terms of non-medical care needs of persons who are dependent or have lost their autonomy, in order to provide the various public and private administrations active in these fields with some food for thought. The anticipated increase in dependency poses significant challenges in terms of needs evolution and financing. Using administrative data on the Belgian population to build indicators on the prevalence of dependency at home in the three regions in 2001, we find that the likelihood of a sustained increase in the Flemish prevalence rates ultimately amplifies the magnitude of the financing problems that the Flemish dependency insurance scheme has experienced since its first years of operation. Results also show that the smaller increases or the decreases (according to the scenario selected) expected in Wallonia and Brussels are likely to mitigate concern about the sustainability of any long-term care insurance in Wallonia and therefore to facilitate its eventual introduction.
    Keywords: Long-term care, Old age assistance, Demographic changes, Regional inequalities, Projection
    JEL: I12 I18 J11 J14
    Date: 2009–02
  4. By: Randall S. Jones; Masahiko Tsutsumi
    Abstract: A well-functioning labour market is essential to sustain rapid economic growth in the face of population ageing. Priorities are to reverse the rising share of non-regular workers, which has negative implications for both growth and equity, and encourage greater employment of women and youth, who are under-represented in the labour force. Attracting more women to employment requires increasing the availability of childcare, strengthening maternity leave and creating more family-friendly workplaces. Youth employment rates should be boosted by upgrading tertiary education through stronger competition and closer links to enterprises to reduce mismatches. Educational reform should be extended to elementary and secondary schools to enhance efficiency and decrease the burden of private tutoring. The age of retirement of employees should be raised by eliminating mandatory retirement and phasing out the retirement allowance. Active labour market policies should focus on policies to expand human capital rather than wage subsidies.<P>Soutenir la croissance en Corée en réformant le marché du travail et en améliorant le système d'éducation<BR>Un marché du travail performant est indispensable au maintien d’une croissance économique rapide face au vieillissement de la population. Les objectifs prioritaires consistent à inverser l’augmentation de la part des travailleurs non réguliers, qui a des conséquences négatives à la fois pour la croissance et pour l’équité, et d’encourager une progression de l’emploi des femmes et des jeunes, qui sont sous-représentés dans la population active. Pour attirer davantage de femmes dans l’emploi, il faut accroître l’offre de services d’accueil des enfants, améliorer la situation en matière de congés de maternité et faire en sorte qu’il y ait davantage de lieux de travail où les obligations familiales sont prises en compte. Les taux d’emploi des jeunes devraient être favorisés en améliorant l’enseignement tertiaire grâce à un renforcement de la concurrence et à un resserrement des liens avec les entreprises afin de réduire les inadéquations. La réforme de l’éducation devrait être étendue aux établissements élémentaires et secondaires de façon à améliorer l’efficience et à diminuer la charge représentée par les cours de soutien privés. L’âge de départ à la retraite des salariés devrait être relevé en éliminant la retraite obligatoire et en supprimant progressivement l’indemnité de retraite. Dans le cadre des politiques actives du marché du travail, il faudrait privilégier le renforcement du capital humain plutôt que le versement de subventions salariales.
    Keywords: Korea, Corée, marché du travail, participation rates, travailleurs âgés, dualism, dualisme, employment protection, protection de l'emploi, travailleurs non réguliers, taux d'activité, female employment, non-regular workers, older workers, activité des femmes, taux de fécondité, labour market, company pensions, retraites allouées par l'entreprise, seniority-based wages, rémunération basée sur l'ancienneté, fertility rate, allocation de retraite, education reform, réforme de l'éducation, retirement allowance, emploi des jeunes
    JEL: J11 J3 J5 J7
    Date: 2009–02–20
  5. By: James Giesecke; G.A. Meagher
    Abstract: The future effects of population ageing on the Australian economy have been widely canvassed in recent years, most notably in the two Intergenerational Reports produced by the Australian Treasury and in the Economic Implications of an Ageing Australia report produced by the Productivity Commission. These reports are mainly concerned with the effect of ageing on the government's budgetary position. On the income side, they focus on how ageing affects labour supply and gross domestic product. On the expenditure side, they focus on how ageing affects various spending categories including education, health and aged care. This paper provides a complementary analysis in that it considers how the structure of the economy is likely to be affected by these influences. In particular, it analyses the effects on 64 skill groups, 81 occupations and 106 industries: * a scale effect due to age-related shifts in total hours of employment (with the skill composition of employment unchanged). * a skill effect due to age-related shifts in hours of employment distinguished by skill (with total hours of employment unchanged), * a taste effect due to age-related shifts in the commodity composition of household final consumption, and * public effect due to age-related shifts in government final consumption. The simulations are conducted using the MONASH applied general equilibrium model of the Australian economy. They generate results for each year from 2004-05 to 2024-25, but the analysis concentrates on explaining the deviations in the levels of selected variables in the basecase (ageing) simulation from their values in the counterfactual (no ageing) simulation in the final year, i.e., 2024-25. Results are reported separately for each of the four effects and for all four taken together (the total effect). The paper pays particular attention to the implications of the analysis for economic policy.
    Keywords: computable general equilibrium modelling, population ageing, economic policy
    JEL: C68 D58 J11 J21 J23
    Date: 2009–01
  6. By: Brasil Gondim, João Luis; Casamatta, Georges
    Abstract: We assess the political support for parametric reforms of the Pay-As-You-Go pension system following a downward fertility shock. Using a continuous time overlapping generations model, we show that, for a large class of utility functions, the majority of the population favor a cut in pension benefits over an increase in the contribution rate. Our framework also allows us to evaluate the political support for raising the retirement age and to determine how the timing of the different reforms affect their political support.
    Keywords: fertility shock; parametric reforms; Pay-As-You-Go
    JEL: D72 H55
    Date: 2008–10
  7. By: Heer, Burkhard; Irmen, Andreas
    Abstract: We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.
    Keywords: capital accumulation; demographic transition; growth; pension reform
    JEL: C68 D31 D91 O11 O41
    Date: 2009–02
  8. By: Leonardo Becchetti (University of Rome Tor Vergata); Elena Giachin Ricca (University of Rome Tor Vergata); Alessandra Pelloni (University of Rome Tor Vergata)
    Abstract: The nexus between relational life and life satisfaction is riddled with endogeneity problems. By investigating the causal relationship going from the first to the second variable we consider that retirement is a shock which increases the time investable in (outside job) relational life. As a consequence we instrument investment in relational goods with the aggregate exogenous age-retirement pattern. With such approach we document that investment in relational life has a positive and significant effect on life satisfaction. Consequences of our findings in terms of retirement effects and age-happiness pattern are also discussed.
    Keywords: life satisfaction, relational goods, social capital
    JEL: I30 D61 A11 A13
    Date: 2009–02
  9. By: Andersen, Torben M
    Abstract: Approaching demographic shifts are raising concerns about fiscal sustainability in most OECD countries. A widespread view based on the tax-smoothing idea is that a prior consolidation of public finances is required to cope with the predicted trend deterioration in the primary budget balance. Both positive aspects in assessing the order of magnitude of sustainability problems and normative aspects of formulating policy strategies are addressed. It is argued that the smoothing argument cannot unconditionally be applied to the demographic problem. It is important to distinguish between increases in the dependency ratio driven by changes in fertility and longevity. For the former the smoothing argument may be appropriate, but not for the latter. In the case of longevity, a trade-off between consolidation and increasing retirement ages becomes relevant, and there are strong arguments why the latter should be pursued by e.g. linking retirement ages to longevity.
    Keywords: fertility; fiscal sustainability; longevity; Tax smoothing
    JEL: E60 H50 J11
    Date: 2008–11
  10. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; Georgetown University)
    Abstract: This paper analyzes pension reforms in Europe and their determinants. As pension reforms are intrinsically difficult to define and pinpoint, we introduce an alternative measure of pension reforms by comparing long-term forecasts of pension expenditures for seventeen European countries. The larger the decrease in expected spending on public pensions in 2050 between two base years, the more successful a pension reform the country achieved (after controlling for other factors, such as demography). Our analysis shows that the reform effort varies widely across countries and over time. Indeed, only three countries in the EU managed to reduce their expected spending on pensions in both reference periods. In the second part of the paper, we analyze factors that may facilitate or hamper pension reform – quality of fiscal institutions, public debt, trade unions’ influence, and also demographic factors. Only the measure of trade union power proves to be significant in explaining pension reforms. Other factors, such as quality of fiscal institutions, size of the existing funded pillar, public debt or recent demographic developments, do not seem to play a significant role. However, specific pension system factors – most significantly the lagged change in pension expenditures – are significant and suggest that European governments do reform their pension systems when faced with the threat of escalating pension expenditures. In conclusion, we propose a hypothesis of “bounded” economic rationale of European governments, as they seem to react to expectations of an increase in pension spending, but they seem to be content with the current spending levels. The appendix gives detailed information on pension reforms in the ten Central and Eastern European countries that became EU members in 2004 and 2007 (EU-10).
    Keywords: pension system, European Union, pension reform, fiscal institutions
    JEL: D72 H55 P26
    Date: 2009–02
  11. By: Howard Oxley
    Abstract: This paper reviews policies in the area of healthy ageing. With the ageing of OECD countries’ population over coming decades, maintaining health in old age will become increasingly important. Successful policies in this area can increase the potential labour force and the supply of non-market services to others. They can also delay the need for longer-term care for the elderly. A first section briefly defines what is meant by healthy ageing and discusses similar concepts – such as “active ageing”. The paper then groups policies into four different types and within each, it describes the range of individual types of programmes that can be brought to bear to enhance improved health of the elderly. A key policy issue in this area concerns whether such programmes have a positive effect on health outcomes and whether they are costeffective.<BR>Ce document de travail examine les politiques relatives au vieillissement en bonne santé. Compte tenu du vieillissement démographique annoncé dans les pays de l’OCDE au cours des prochaines décennies, préserver la bonne santé des personnes âgées deviendra de plus en plus important. Des politiques réussies dans ce domaine peuvent augmenter la main-d’oeuvre potentielle ainsi que l’offre de services non marchands. Elles peuvent aussi retarder le besoin de soins de longue durée pour les personnes âgées. Une première partie définit brièvement ce que l’on entend par « vieillir en bonne santé » et analyse des concepts similaires – tels que le « vieillissement actif ». Le rapport présente ensuite quatre groupes de politiques et, pour chacun, les différents programmes mobilisables afin d’améliorer l’état de santé des personnes âgées. Une question importante sur l’action publique dans ce domaine consiste à savoir si ces programmes ont un effet positif sur les résultats de santé et s’ils sont coût-efficaces.
    JEL: I18
    Date: 2009–02–16
  12. By: Margaret Denton; Jenny Ploeg; Joseph Tindale; Brian Hutchison; Kevin Brazil; Noori Akhtar-Danesh; Monica Quinlan
    Abstract: Community support services (CSSs) enable persons coping with health or social problems to maintain the highest possible level of social functioning and quality of life. Access to these services is challenging because of the multiplicity of small agencies providing these services and the lack of a central access point. A review of the literature revealed that most service awareness studies are marred by acquiescence bias. To address this issue, service providers developed a series of 12 vignettes to describe common situations faced by older adults for which CSSs might be appropriate. In a telephone interview, 1152 older adults were presented with a series of vignettes and asked what they would do in that situation. They were also asked about their most important sources of information about CSSs. Findings show awareness of CSSs varied by the situation described and ranged from a low of 1% to 41%. The most important sources of information about CSSs included informational and referral sources, the telephone book, doctor’s offices, and through word of mouth.
    Keywords: Community Support Services, awareness, knowledge, acquiencence bias, vignette methodology
    JEL: I18
    Date: 2009–02
  13. By: Randall S. Jones
    Abstract: Korea has one of the lowest tax burdens in the OECD area, reflecting its small public sector. However, rapid population ageing will put upward pressure on government spending. The challenge is to meet the long-run need for greater expenditures and tax revenue while sustaining strong economic growth. A pro-growth tax reform implies relying primarily on consumption taxes for additional revenue. There is also scope for raising personal income tax revenue from its current low level by broadening the base by reducing the exemptions for personal income. The planned cuts in the corporate tax rate should be financed at least in part by reductions in tax expenditures. The broadening of direct tax bases would also help finance an expansion of the earned income tax credit to address widening income inequality. In addition, the local tax system should be simplified and reformed to enhance the autonomy of local governments.<P>Réformer le système fiscal en Corée afin de favoriser la croissance économique et de faire face au rapide vieillissement démographique<BR>La Corée est l’un des pays où la charge fiscale est la plus faible dans la zone de l’OCDE, en raison de la petite taille du secteur public. Cependant, le rapide vieillissement démographique va exercer une pression grandissante sur les finances publiques. La difficulté consiste à répondre au besoin à long terme de dépenses publiques et de recettes fiscales accrues tout en soutenant une vigoureuse expansion économique. Pour qu’une réforme fiscale aide à la croissance, elle doit privilégier les impôts sur la consommation comme source de recettes supplémentaires. Il est aussi possible d’augmenter le produit de l’impôt sur le revenu des personnes physiques, actuellement peu élevé, en élargissant l’assiette grâce à une diminution des exonérations. Les réductions prévues du taux d’imposition des sociétés devraient être financées, en partie du moins, par des compressions de dépenses fiscales. L’élargissement des bases d’imposition directe aiderait aussi à financer une extension du crédit d’impôt sur les revenus d’activité afin de remédier aux inégalités croissantes de revenu. Par ailleurs, le système d’impôts locaux devrait être simplifié et réformé afin de renforcer l’autonomie des collectivités territoriales.
    Keywords: fiscalité, tax reform, impôt, dépense fiscale, property tax, taxe foncière, relative poverty, pauvreté relative, fiscalité locale, capital gains taxes, TVA, VAT, personal income tax, corporate income tax, réforme de la taxation, coin fiscal, impôt sur les bénéfices, tax expenditures, earned income tax credit, crédit d’impôt sur le revenu d’activités professionnelles, environmentally-related taxes, taxes liées à l'environnement, Korean tax system, système de taxation coréen, local tax system, tax wedge
    JEL: H20 H22 H23 H24 H25
    Date: 2009–02–20

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