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on Economics of Ageing |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Blomquist, Sören (Department of Economics, Uppsala University) |
| Abstract: | In this paper, we consider how the retirement age as well as a tax financed pension system ought to respond to a change in the standard deviation of the length of life. In a first best framework, where a benevolent government exercises perfect control over the individuals’ labor supply and retirement-decisions, the results show that a decrease in the standard deviation of life-length leads to an increase in the optimal retirement age and vice versa, if the preferences for “the number of years spent in retirement” are characterized by constant or decreasing absolute risk aversion. A similar result follows in a second best setting, where the government raises revenue via a proportional tax (or pension fee) to finance a lump-sum benefit per year spent in retirement. We consider two versions of this model, one with a mandatory retirement age decided upon by the government and the other where the retirement age is a private decision-variable. |
| Keywords: | Uncertain lifetime; retirement; pension system |
| JEL: | D61 D80 H21 H55 |
| Date: | 2010–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0818&r=age |
| By: | Forteza, Alvaro; Apella, Ignacio; Fajnzylber, Eduardo; Grushka, Carlos; Rossi, Ianina; Sanroman, Graciela |
| Abstract: | The authors propose alternative methods to project pension rights and implement them in Chile and Uruguay and partially in Argentina. The authors use incomplete work histories databases from the social security administrations to project entire lifetime work histories. The authors first fit linear probability and duration models of the contribution status and dynamic linear models of the income level. The authors then run Monte Carlo simulations to project work histories and compute pension rights. According to results, significant swathes of the population would not access to fundamental pension benefits at age 65, if the current eligibility rules were strictly enforced. |
| Keywords: | Pensions&Retirement Systems,Labor Markets,Emerging Markets,Gender and Law,Debt Markets |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:hdnspu:52446&r=age |
| By: | Forteza, Alvaro; Ourens, Guzman |
| Abstract: | The authors present a new database of social security indicators for eleven Latin American countries designed to assess pension schemes in terms of the payments they promise in return to contributions. Based on this data, authors analyze inequality, insurance and incentives to work, using the replacement rates and the internal rates of return implicit in the flows of contributions and pensions. Results indicate that most programs analyzed are progressive in the sense that, other things equal, they yield higher returns to low than to high income workers. Poor workers, notwithstanding, often have flat age-earnings profiles and lower life expectancy, both of which reduce the rates of return received from social security. The Argentinean and (the pre-2008) Uruguayan programs severely punish short contribution careers, providing strong incentives for workers in the programs to continue contributing until they reach minimums that vary between 30 and 35 years of contributions. The counterpart is that these programs do not hedge workers against the risk of having short working careers; quite the opposite, they raise the uncertainty workers face. The very low rates of return that the Argentinean and Uruguayan main pension programs pay to workers with short working careers are likely to impact strongly on low income workers, as the probability they experience interruptions is higher. The Brazilian, Chilean and Mexican programs show a better balance between insurance against the risk of short working careers and incentives to work. The defined benefit programs of Argentina, Ecuador and Uruguay strongly discourage early retirement; the Chilean and Mexican programs are more neutral. Argentina, Chile and Uruguay passed reforms to their main pension programs in 2008. Unlike the Argentinean reform, the Chilean and Uruguayan 2008 reforms strengthened the social protection that programs provide, shifting the balance towards more insurance and less incentives to work. |
| Keywords: | Pensions&Retirement Systems,Emerging Markets,Debt Markets,Gender and Law,Labor Markets |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:hdnspu:52447&r=age |
| By: | Piggott, John; Sane, Renuka |
| Abstract: | Pension indexation should anchor the parameters of the pension system to one or more economic and demographic variables to ensure that the system is implemented in a sustainable way, while minimizing distortions affecting important economic choices. Arguing that financial sustainability, incentive compatibility and consistency across multiple government programs are critical, the author examine the many linkages between the various parameters of pension schemes. Finally, the author turn to the cost of the insurance dimension of indexation, and suggest that option pricing techniques could be used to price indexation guarantees, and that this approach may suggest refinements to indexation practice not thus far implemented. |
| Keywords: | Emerging Markets,Debt Markets,Pensions&Retirement Systems,Economic Theory&Research,Markets and Market Access |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:hdnspu:52445&r=age |
| By: | Robalino, David A.; Zylberstajn, Eduardo; Zylberstajn, Helio; Afonso, Luis Eduardo |
| Abstract: | This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal versus informal work, attitudes towards risks, the rate of time preference, and the distribution of an exogenous shock that affects movements in and out of the social insurance system (given individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of a given cohort across states (in or out of the social insurance / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel, benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian social insurance system today might generate unnecessary distortions (lower savings rates and less formal employment) that increase the costs of the system and can induce regressive redistribution; (ii) there are important interactions between the unemployment benefits and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then combining matching contributions and anti-poverty targeted transfers to cover individuals with limited or no savings capacity. |
| Keywords: | Pensions&Retirement Systems,Emerging Markets,Labor Policies,Labor Markets,Debt Markets |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:hdnspu:52448&r=age |
| By: | Bohn, Henning |
| Abstract: | Most state and local retirement plans strive for full funding, at least by actuarial standards. Funding measured at market values fluctuates and often falls short. A common argument for full funding is that pensions are a form of deferred compensation that does not justify a debt. The paper examines public finance, political economy, and financial market issues that bear on optimal funding, broadly and in a series of models. In a model where most taxpayers hold debt and face intermediation costs, returns on pension assets are less than taxpayers’ cost of borrowing. Pension funding is costly and hence zero funding is optimal. The model also implies that unfunded pension promises are properly discounted at a rate strictly greater than the government’s borrowing rate. If pension funds serve as collateral, funding can be warranted despite the cost. This is shown in a model with legal ambiguity and default risk. Except in special cases, the optimal funding ratio is less than full funding. |
| Keywords: | Public pensions, pension funding |
| Date: | 2010–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:1591441&r=age |
| By: | Klaus Prettner; Alexia Prskawetz |
| Abstract: | The purpose of this article is to identify the role of population size, population growth and population ageing in models of endogenous economic growth. While in exogenous growth models demographic variables are linked to economic prosperity mainly via the population size, the structure of the workforce, and the capital intensity of workers, endogenous growth models and their successors also allow for interrelationships between demography and technological change. However, most of the existing literature considers only the interrelationships based on population size and its growth rate and does not explicitly account for population ageing. The aim of this paper is (a) to review the role of population size and population growth in the most commonly used economic growth models (with a focus on endogenous economic growth models), (b) discuss models that also allow for population ageing, and (c) sketch out the policy implications of the most commonly used endogenous growth models and compare them to each other. |
| Keywords: | Demographic change, endogenous R&D, economic growth |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:vid:wpaper:1008&r=age |
| By: | Miguel Sánchez Romero (Max Planck Institute for Demographic Research, Rostock, Germany); Concepcion Patxot; Elisenda Renteria; Guadalupe Souto |
| Abstract: | Inter- and intra-family transfers are a very important part of our daily economic activity. These transfers, whether familial or public, may influence our economic decisions to the same extent that financial markets do. In this paper, we seek to understand how the Spanish stock of capital will evolve if the set of intergenerational transfers observed in year 2000 are maintained in the future. With that aim in mind, we have implemented a general equilibrium overlapping generations model with realistic public and familial transfers drawn from the National Transfer Accounts project (NTA). Given that familial transfers go from parents to children, and public transfers go from children to parents, we show that the Spanish baby boom and baby bust will make the second demographic dividend temporary, and that welfare will be reduced from 2040 onwards. |
| Keywords: | Spain, demographic ageing, economic demography, economic growth |
| JEL: | J1 Z0 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:dem:wpaper:wp-2010-029&r=age |
| By: | Javier Alonso; Jasmina Bjeletic; David Tuesta |
| Abstract: | This paper analyzes the fees collection system in the Peruvian pension system and evaluates switching from fees on flow to fees on assets, which has several advantages. These advantages include the fact that it makes the fees that the pension company charges for the service it provides more transparent by considering the assets being managed (the pension fund), and not the member’s salary, as the basis. The paper concludes that, at the moment, the Peruvian private pension system has reached sufficient maturity so as to consider implementing a fee in Individual Account Pension Systems, which would make the system management and supervision process more transparent. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1024&r=age |
| By: | James, Estelle |
| Abstract: | This paper provides a framework for analyzing the efficiency and equity of survivor benefit programs. These programs were originally designed to support families when the main wage-earner died, in an era where women rarely worked, fertility rates were high, and widows were unable to support themselves and their children. Yet, voluntary saving and insurance were often insufficient due to myopia. Mandatory survivor benefits helped to achieve lifetime consumption smoothing for the family and to prevent poverty among elderly widows the group where old age poverty is concentrated. The question is these programs still needed in an era when most women work and fertility rates have fallen and, if so, how should they be designed? The author argues that, even in a world of perfect gender equality, mandatory family co-insurance may still be justified because couples are unlikely to plan adequately for household economies of scale. This leads the cost of living of a widow(er) to be much more than half that of a couple. In addition, some disparity in work and wage patterns of men and women remains in every country. While such programs may benefit both spouses, women are the greatest recipients because they outlive their husbands. However, as currently designed, many survivor benefit programs entail work disincentives and perverse redistributions from women who work in the market to those who do not, from singles and dual career couples to single-earner couples and sometimes from low- to high-earning families. These cross-subsidies penalize women who work in the market and therefore may discourage such work, decrease their income and increase their old-age poverty rates. The insurance goal can be achieved without these negative incentives and redistributions by internalizing the cost within the family rather than passing it on to the common pool and by allowing widow(ers) to keep their own pensions in addition to the survivor benefits. |
| Keywords: | Gender and Law,Economic Theory&Research,Access to Finance,Population Policies,Debt Markets |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:hdnspu:52919&r=age |
| By: | Andreassen Leif (University of Turin) |
| Abstract: | The paper studies the interaction of publicly provided care for the elderly on demographic developments. A two-sex OLG model is used to examines how exogenous changes in mortality, the cost of children and the bargaining power of women influence fertility, public and private care for the elderly, and the length of education taken by women and men. The paper focuses especially on the interaction between declining mortality and the expansion of care for the elderly. In the model declining mortality can affect fertility differently according to how developed the economy is. At an early development stage, when public care is little developed, the effect of decreasing mortality on fertility can be positive, while at a later stage with higher levels of public care, the effect can be negative. The model is consistent with observed developments over the last century including fluctuations and decline in fertility, increases in the average age of giving birth, increasing levels of education with lessening differences in the education levels of women and men, increasing incomes, and increased public care for the elderly. In a small open economy where individuals live for five periods with uncertain lifetimes, the choices made by males and females are the result of a combination of utility maximization and negotiation. First, bargaining positions are formed through utility maximization given individual budget constraints, then the Nash bargaining solution determines the number of children and voting determines the level of public care for the elderly, and finally couples maximize a joint household welfare function to determine education, private care for the elderly and consumption. The only exogenous differences between women and men concern mortality, bargaining power and required time devoted to raising young children; otherwise women and men have identical utility functions and opportunities. Functional forms are chosen so that the model has a recursive nature with simple closed form solutions. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:201010&r=age |
| By: | Jasmina Bjeletic; Carlos Herrera; David Tuesta; Javier Alonso |
| Abstract: | This document contains a series of simulation exercises aimed at modeling returns in the private pension funds industry in Peru over the next 50 years. The results support the argument that return losses registered in Pension Funds due to the global fi nancial crisis are part of a set of temporary phenomenon. In this way, a long-term approach offers a higher growth prospective for returns than other savings alternatives. Also, we conclude that returns vary according to the risk profi le of the fund chosen by the affi liates for their contributions, and that choosing the Type 3 Fund yields higher returns, albeit through more exposure to equities and thus greater volatility. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1020&r=age |