nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒06‒04
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Life-Cycle Unemployment, Retirement and Parametric Pension Reform By Keuschnigg, Christian; Fisher, Walter
  2. Childhood Health and Differences in Late-Life Health Outcomes Between England and the United States By James Banks; Zoe Oldfield; James P. Smith
  3. A fiscal outlook for Poland using Generational Accounts By Janusz Jablonowski; Christoph Müller; Bernd Raffelhüschen
  4. Funding in Public Sector Pension Plans - International Evidence By Eduard Ponds; Clara Severinson; Juan Yermo
  5. Consumption Behavior of Elderly Households and Price Index By UNAYAMA Takashi; KEIDA Masayuki
  6. Retirement Withdrawal Rates and Portfolio Success Rates: What Can the Historical Record Teach Us? By Pfau, Wade Donald
  7. Long-Term Fiscal Effects of Public Pension Reform in Norway — A Generational Accounting Analysis By Christian Hagist; Bernd Raffelhüschen; Alf Erling Risa; Erling Vårdal
  8. An OLG model of growth with longevity: when grandparents take care of grandchildren By Fanti, Luciano; Gori, Luca

  1. By: Keuschnigg, Christian; Fisher, Walter
    Abstract: This paper investigates the consequences of pension reform for life-cycle unemployment and retirement. We find that (i) improving actuarial fairness in pension assessment not only boosts old age participation but also reduces unemployment among prime age workers and raises welfare; (ii) strengthening the tax benefit link boosts life-cycle labor supply on all margins and welfare; (iii) excluding unemployment benefits from the pension assessment base reduces unemployment, encourages later retirement and boosts efficiency; and (iv) extending the calculation period favors employment of young workers, might possibly lead to more unemployment among older ones, encourages postponed retirement and most likely yields positive welfare gains.
    Keywords: Pensions, tax benefit link, retirement, unemployment.
    JEL: H55 J26
    Date: 2011–05
  2. By: James Banks; Zoe Oldfield; James P. Smith
    Abstract: In this paper we examine the link between retrospectively reported measures of childhood health and the prevalence of various major and minor diseases at older ages. Our analysis is based on comparable retrospective questionnaires placed in the Health and Retirement Study and the English Longitudinal Study of Ageing – nationally representative surveys of the age 50 plus population in America and England respectively. We show that the origins of poorer adult health among older Americans compared to the English trace right back into the childhood years – the American middle and old-age population report higher rates of specific childhood health conditions than their English counterparts. The transmission into poor health in mid life and older ages of these higher rates of childhood illnesses also appears to be higher in America compared to England. Both factors contribute to higher rates of adult illness in the United States compared to England although even in combination they do not explain the full extent of the country difference in late-life health outcomes.
    JEL: I10
    Date: 2011–05
  3. By: Janusz Jablonowski; Christoph Müller (Research Center for Generational Contracts, University of Freiburg); Bernd Raffelhüschen (Research Center for Generational Contracts, University of Freiburg)
    Abstract: During the next few decades the populations of most developed countries will grow older and older as a result of the low fertility rates since the 1970s and/or the continuously increasing life expectancy. Poland, one of the biggest countries in Central Europe, will be confronted rather seriously by this development. Generational Accounting which was introduced in the early nineties, can illustrate the effects of this ageing process on a country’s fiscal situation. We show that the demographic development produces a major challenge for the long term stability of Polish public finances. In particular the healthcare system deserves special attention for policy makers in the medium and long run, whilst the general pension system shall stabilise in the long term.
    Keywords: Generational Accounting, Fiscal sustainability, Fiscal policy, Poland, Pension reform
    JEL: H50 H55 H60 H68 J10 H30
    Date: 2010–10
  4. By: Eduard Ponds; Clara Severinson; Juan Yermo
    Abstract: Most countries have separate pension plan for public sector employees. The future fiscal burden of these plans can be substantial as the government usually is the largest employer, pension promises in the public sector tend to be relatively generous, and future payments have to be paid out directly from government revenues (pay-as-you-go) or by funded plans (pension funds) which tend to be underfunded. The valuation and disclosure of these promises in some countries lacks transparency, which may be hiding potentially huge fiscal liabilities that are being passed on to future generations of workers. In order to arrive at a fair comparison between countries regarding the fiscal burden of their DB public sector pension plans, this paper gathers more evidence on public sector pension plans regarding the type of pension promise and quantifies the future tax burden related to these pension promises. The reported liabilities are recalculated using both a fair value approach (local market discount rates) and a common, fixed discount rate across all countries which reflects projected growth in national income. We also estimate for a number of plans from a sample of OECD countries the size of the net unfunded liabilities in fair value terms as of the end of 2008. This fiscal burden can also be interpreted as the implicit pension debt in fair value terms.
    JEL: H55 H6 H7 H75 H83
    Date: 2011–05
  5. By: UNAYAMA Takashi; KEIDA Masayuki
    Abstract: This paper constructs a price index for elderly households in which differences in expenditure share and points of purchase are explicitly taken into account. Elderly households spend more on food and medical care, while younger households spend more on education, transportation, and communications. As for points of purchase, in general, elderly households spend less in discount stores. These differences result in an underestimation of the inflation rate for elderly households by 2%, of which, 1.5% is due to differences in expenditure share and 0.5% is due to differences in points of purchase. However, even after taking such differences into account, the inflation rate for the elderly is less than that derived from the official CPI, which does not take into account points of purchase. Accordingly, the existing price indexation of pension benefits likely results in higher-than-appropriate benefit levels.
    Date: 2011–04
  6. By: Pfau, Wade Donald
    Abstract: Countless current and prospective retirees now rely on portfolio success rates calculated from the historical data for different retirement withdrawal strategies when planning their own retirements. Past history-based studies ushered forth what has become known as the 4 percent rule for retirement withdrawals, as historically 4 percent with inflation adjustments has served as a relatively safe withdrawal rate in the United States. But this study investigates whether the safety of the 4 percent rule achieved with an aggressive asset allocation is an appropriate conclusion to draw from the historical record. Historical portfolio success rates calculated from U.S. data may present a misleadingly rosy picture. In the time period covered by key withdrawal rate studies, financial markets in the United States performed exceedingly well from an international perspective, and such continued successes should not simply be assumed. Second, rolling historical simulations have made high stock allocations look more attractive than may be justified by over-representing a portion of the historical record in which bonds performed exceedingly poorly. Third, and most importantly, historical portfolio success rates teach the wrong lesson from the historical data as they do not account for the changing circumstances facing recent retirees. High earnings multiples, low dividend yields and low nominal interest rates indicate that conservative retirees should adjust their forecasts for future asset returns downward, which further implies lower sustainable withdrawal rates. For prospective retirees, the real lesson provided by the historical data is not past portfolio success rates, but rather to see how maximum sustainable withdrawal rates have related to the underlying sources of asset returns.
    Keywords: safe withdrawal rates; retirement planning; withdrawal rate strategies
    JEL: G11 C20 N22 C15 D14
    Date: 2011–05–26
  7. By: Christian Hagist (Research Center for Generational Contracts, University of Freiburg); Bernd Raffelhüschen (Research Center for Generational Contracts, University of Freiburg); Alf Erling Risa; Erling Vårdal
    Abstract: Generational Accounts (GAs) measure the fiscal sustainability of the public sector. We ask whether the contributions from the Government Pension Fund and remaining oil and gas wealth in the ground, together with the pension reform taking effect in 2011, are sufficiently large to secure generational balance in Norway. Our results show that the pension reform has a substantial effect, and contributes as much to generational balance as the total petroleum wealth. Neither increased economic growth per se nor increased fertility contribute to improve the GAs. The structural characteristics of higher employment and lower transfer payments typical for cyclical upturns, improve the GAs substantially. Optimistic assumptions regarding these structural characteristics do not remove the need for further reforms to obtain fiscal sustainability of the Norwegian public sector.
    Keywords: Generational Accounting, Norway, Fiscal Policy, Intergenerational redistribution
    JEL: H50 J10
    Date: 2010–08
  8. By: Fanti, Luciano; Gori, Luca
    Abstract: By assuming that grandparents take care of grandchildren, in this paper we aim at studying the effects of longevity on economic growth in the basic OLG model with endogenous fertility. We show that a rise in longevity can actually reduce long-run growth. Moreover, we also find that an increasing longevity (i) increases the supply of labour by the young parents, and (ii) causes fertility either to increase of decrease depending on the size of the grandparental child rearing time.
    Keywords: Longevity; OLG model
    JEL: J13 O41 J22
    Date: 2011–05–28

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