nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒03‒06
seven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Does Retirement Affect Cognitive Functioning? By Bonsang Eric; Adam Stéphane; Perelman Sergio
  2. Old Europe ages: Reforms and Reform Backlashes By Axel H. Boersch-Supan; Alexander Ludwig
  3. How slowing senescence changes life expectancy By Joshua R. Goldstein; Thomas Cassidy
  4. Health Cost Risk and Optimal Retirement Provision: A Simple Rule for Annuity Demand By Peijnenburg, J.M.J.; Nijman, T.E.; Werker, B.J.M.
  5. Age, Wage and Productivity By Ours, J.C. van; Stoeldraijer, L.
  6. Saver's Choice: Comparing the Marginal Effective Tax Burdens on RRSPs and TFSAs By Alexandre Laurin; Finn Poschmann
  7. Earnings Determination and Taxes: Evidence from a Cohort Based Payroll Tax Reform in Greece By Emmanuel Saez; Manos Matsaganis; Panos Tsakloglou

  1. By: Bonsang Eric; Adam Stéphane; Perelman Sergio (ROA rm)
    Abstract: This paper analyzes the effect of retirement on cognitive functioning using two large scale surveys. On the one hand the HRS, a longitudinal survey among individuals aged 50+ living in the United States, allows us to control for individual heterogeneity and endogeneity of the retirement decision by using the eligibility age for Social Security as an instrument. On the other hand, a comparable international European survey, SHARE, allows us to identify the causal effect of retirement on cognitive functioning by using the cross-country differences in the age-pattern of retirement. The results highlight in both cases a significant negative, and quantitatively comparable, effect of retirement on cognitive functioning. Our results suggest that promoting labor force participation of older workers is not only desirable to insure the viability of retirement schemes, but it could also delay cognitive decline, and thus the occurrence of associated impairments at older age.
    Keywords: education, training and the labour market;
    Date: 2010
  2. By: Axel H. Boersch-Supan; Alexander Ludwig
    Abstract: The extent of the demographic changes in Europe is dramatic and will deeply affect future labor, financial and goods markets. The expected strain on public budgets and especially social security has already received prominent attention, but aging poses many other economic challenges that threaten growth and living standards if they remain unaddressed. This paper focuses on three large Continental European countries: France, Germany, and Italy. These countries have large pay-as-you-go pension systems and vulnerable labor markets. At the same time, they show remarkable resistance against pension and labor market reform. While there is no shortage of reform proposals to address population aging, most of those focused on pension and labor market reform, little is known about behavioral reactions to such reforms. This paper therefore sheds light on the potential benefits of pension and labor market reform for growth and living standards, taking into account behavioral reactions to specific reforms. Which behavioral reactions will strengthen, which will weaken reform policies? Can Old Europe maintain its standard of living even if behavioral reactions offset some of the current reform efforts?
    JEL: D13 E27 F16 F21 H55 J1 J21
    Date: 2010–02
  3. By: Joshua R. Goldstein (Max Planck Institute for Demographic Research, Rostock, Germany); Thomas Cassidy (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Mortality decline has historically been a result of reductions in the level of mortality at all ages. The slope of mortality increase with age has been remarkably stable. A number of leading researchers on aging, however, suggest that the next revolution of longevity increase will be the result of slowing down the rate of aging, lessening the rate at which mortality increases as we get older. In this paper, we show mathematically how varying the pace of senescence influences life expectancy. We provide a formula that holds for any baseline hazard function. Our result is analogous to Keyfitz's "entropy" relationship for changing the level of mortality. Interestingly, the influence of the shape of the baseline schedule on the effect of senescence changes is the complement of that found for level changes. We also provide a generalized formulation that mixes level and slope effects.
    JEL: J1 Z0
    Date: 2010–02
  4. By: Peijnenburg, J.M.J.; Nijman, T.E.; Werker, B.J.M. (Tilburg University, Center for Economic Research)
    Abstract: We analyze the effect of health cost risk on optimal annuity demand and consumption/savings decisions. Many retirees are exposed to sizeable out-of-pocket medical expenses, while annuities potentially impair the ability to get liquidity to cover these costs and smooth consumption. We find that if out-of-pocket medical expenses can already be very sizeable early in retirement, full annuitization is suboptimal. In other cases, individuals take advantage of the mortality credit annuities provide and save out of the annuity income to build a buffer for health cost shocks at later ages. When comparing to empirically observed levels of annuitization, we find that sizeable health cost risk early in retirement may resolve the annuity puzzle. Moreover, we explain the observed pattern of annuitization as a function of initial wealth at retirement. For personal financial planning purposes, we develop a simple rule of thumb for annuity demand, based on expected health cost risk early in retirement, wealth at retirement, and subsistence consumption levels. We show that the welfare costs from using the rule compared to the life cycle model are small.
    Keywords: Optimal life cycle portfolio choice;health cost risk;annuity;retirement
    JEL: D14 D91 G11 I1
    Date: 2010
  5. By: Ours, J.C. van; Stoeldraijer, L. (Tilburg University, Center for Economic Research)
    Abstract: Previous empirical studies on the effect of age on productivity and wages find contradicting results. Some studies find that if workers grow older there is an increasing gap between productivity and wages, i.e. wages increase with age while productivity does not or does not increase at the same pace. However, other studies find no evidence of such an age related pay-productivity gap. We perform an analysis of the relationship between age, wage and productivity using a matched worker-firm panel dataset from Dutch manufacturing covering the period 2000-2005. We find little evidence of an age related pay-productivity gap.
    Keywords: age;wage;productivity
    JEL: J23 J31
    Date: 2010
  6. By: Alexandre Laurin (C.D. Howe Institute); Finn Poschmann (C.D. Howe Institute)
    Abstract: Canada’s graduated personal income tax leads most taxpayers to expect higher tax rates when they are working than when they are living on lower incomes from their retirement savings. Yet for many people, marginal effective tax rates on income from retirement savings are higher than those they face during working life. Comparing marginal effective tax rates across income levels suggests that many Canadians with savings in tax-deferred vehicles, like Registered Retirement Savings Plans, should put more future saving in tax-prepaid savings plans, particularly Tax Free Savings Accounts.
    Keywords: Pension Papers, Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs), marginal effective tax rates (METRs)
    JEL: E21 G23 H21
    Date: 2010–01
  7. By: Emmanuel Saez; Manos Matsaganis; Panos Tsakloglou
    Abstract: This paper analyzes the response of earnings to payroll tax rates using a cohort-based reform in Greece. All individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes, creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers. Using full population administrative Social Security data and a Regression Discontinuity Design, we estimate the long-term incidence and effects of marginal payroll tax rates on earnings. Standard theory predicts that, in the long run, new regime workers should bear the entire burden of the payroll tax increase (relative to old regime workers). In contrast, we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes. We do not find any evidence of labor supply responses around the discontinuity, suggesting low efficiency costs of payroll taxes. The non-standard incidence results are the same across firms of different sizes. Tax incidence, however, is standard for older workers in the new regime as they bear both the employee and employer tax. Those results, combined with a direct small survey of employers, can be explained by social norms regarding seniority-based pay which create a growing wedge between pay and productivity as workers age.
    JEL: J23 J38
    Date: 2010–02

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