nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒12‒19
ten papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Recent Evolution of Retirement Patterns in Canada By Pierre Lefebvre; Philip Merrigan; Pierre-Carl Michaud
  2. Potential outcomes of private pension developments in China By Javier Alonso, Miguel Angel Caballero, Li Hui, María Claudia Llanes, David Tuesta, Yuwei Hu, Yun Cao; Javier Alonso; Miguel Angel Caballero; Li Hui; Maria Claudia Llanes; David Tuesta; Yuwei Hu; Yun Cao
  3. On efficiently financing retirement By Ellen R. McGrattan; Edward C. Prescott
  4. The strengths and failures of incentive mechanisms in notional defined contribution pension systems By A. Marano; C. Mazzaferro; M. Morciano
  5. The Canadian Elder Standard - Pricing the Cost of Basic Needs for the Canadian Elderly By Bonnie-Jeanne MacDonald; Doug Andrews; Robert L. Brown
  6. Revue de la littérature sur l’évolution future de l’espérance de vie et de l’espérance de vie en santé By Robert Bourbeau; Jacques Légaré; Nadine Ouellette
  7. Aging and strategic learning: the impact of spousal incentives on financial literacy By Joanne W. Hsu
  8. Will ageing lead to a higher real exchange rate for the Netherlands? By Casper van Ewijk; Maikel Volkerink
  9. Modelling the Age Dynamics of Chronic Health Conditions: Life-Table-Consistent Transition Probabilities and Their Application By Frank T. Denton; Byron G. Spencer
  10. Demographic Divide and Labor Migration in the Euro-Mediterranean Region By Tosun, Mehmet S.

  1. By: Pierre Lefebvre; Philip Merrigan; Pierre-Carl Michaud
    Abstract: Using data from three waves of the General Social Survey on retirement and older workers (1994, 2002 and 2007), we document the evolution of retirement patterns over the last three decades. We combined the analysis of retirement ages of actual retirees with data on expected retirement ages of current workers to create a longer perspective on changes in retirement behaviour in Canada. We also investigate trends in work after retirement. Our findings are in line with findings from other countries. There is an upward trend in retirement ages which likely started around year 2000 for cohorts born after 1945. This trend contrasts with the slow decline in retirement ages observed prior to the end of the millennium. While the downward trend was likely due to factors such as the offering of early retirement programs in private firms, the upward trend is likely to be caused by a wider variety of sources, including better health, less pervasive defined benefit pensions and in general less generous pensions.
    Keywords: Retirement, aging, older workers, expectations
    JEL: J26
    Date: 2011–09
  2. By: Javier Alonso, Miguel Angel Caballero, Li Hui, María Claudia Llanes, David Tuesta, Yuwei Hu, Yun Cao; Javier Alonso; Miguel Angel Caballero; Li Hui; Maria Claudia Llanes; David Tuesta; Yuwei Hu; Yun Cao
    Abstract: Despite the fact that China is already one of the most important economies in the world, the country has many big tasks to solve, being one of them the implementation of a comprehensive social agenda, including those related with the old-age stage and the consequently diminishing financial resources upon retirement from active work.. Taking into account the accelerated changes in fertility and longevity trends, it is widely forecasted that the absence of a well developed safety net for the old age stage could undermine economic and social sustainability of the Chinese society. In this sense, the main objective of this paper is to develop a preliminary discussion about prospects of pension system in China, taking into account the ineludible role of government in this social issue and the active potential participation of the private sector. Considering that, this piece of research provides a historical background of Chinese pension; discusses the existing pension schemes in China in order to understand the different areas of future developments; analyzes the potential market for contributory schemes; and strives to develop a model to forecast likely outcomes of the social insurance system by 2020.
    Keywords: Pension Funds, Other Private Financial Institutions, Social Security, Public Pensions
    JEL: H55 G23
    Date: 2011–11
  3. By: Ellen R. McGrattan; Edward C. Prescott
    Abstract: A problem facing the United States and many other countries is how to finance retirement consumption as the number of their workers per retiree falls. The problem with a savings for retirement systems is that there is a shortage of good savings opportunities given the nature of most current tax systems and governments’ limited ability to honor the debt it issues. We find that eliminating capital income taxes will greatly increase saving opportunities and make a savings-for-retirement system feasible with only modest amount of government debt. The switch from a system close to the current U.S. retirement system, which relies heavily on taxing workers’ incomes and making lump-sum transfers to retirees, to one without income taxes will increase the welfare of all birth-year cohorts alive today and particularly the welfare of the yet unborn cohorts. The equilibrium paths for the current and alternative policies are computed.
    Date: 2011
  4. By: A. Marano; C. Mazzaferro; M. Morciano
    Abstract: Public pension systems based on the Notional Defined Contribution (NDC) principle were introduced during the ‘90s in Italy, Sweden and Poland, among other countries. They mimic private savings, in that individuals get back, as pensioners, what they contributed to social security during working life, plus returns. As such, NDC systems should realize actuarial equity and incentive neutrality. However, when one considers the presence of NDC pensions together with minimum and social assistance pensions, this is no longer true. Indeed, in all the three countries considered, the NDC system shows a regressive feature, which disincentivizes contributions, particularly from low earners, who would be better off entering, or staying in, the shadow economy. In order to reduce the extent of this phenomenon, we examine the effects of introducing, or increasing, the possibility of accumulation of social assistance and NDC pensions, which would also improve pension adequacy. A complete accumulation of the two would solve the incentive problem, but would be costly and would require a structural reform of the pension system financing mechanism, altering the current balance between social contributions and general fiscal revenues. We show the effects of a change in the cumulation rules for social assistance and NDC pensions in Italy using CAPP_DYN, a population-based dynamic microsimulation model, which allows assessment of the evolution of the pension system in the coming decades and the distributional implications of such reform.
    JEL: H55 J26 C51
    Date: 2011–11
  5. By: Bonnie-Jeanne MacDonald; Doug Andrews; Robert L. Brown
    Abstract: We determined the after-tax income required to fi nance basic needs for Canadian elders living with different circumstances in terms of age, gender, city of residence, household size, homeowner or renter status, means of transportation, and health status. Using 2001 as our base year, we priced the typical expenses for food, shelter, medical, transportation, miscellaneous basic living items and home-based long-term care for elders living in fi ve Canadian cities. This is the fi rst Canadian study of basic living expenses tailored to elders instead of adults in general, prepared on an absolute rather than a relative basis. We also accounted for an individual’s unique life circumstances and established the varying effect that they have on the cost of basic expenses, particularly for home care. We found that the maximum Guaranteed Income Supple ment and Old Age Security benefi t did not meet the cost of basic needs for an elder living in poor circumstances.
    Keywords: Canadian seniors, poverty measure, economic security, aging-in-place, cost-of-living, absolute measure, home care
    JEL: I32
    Date: 2011–08
  6. By: Robert Bourbeau; Jacques Légaré; Nadine Ouellette
    Abstract: Like many industrialized countries, Canada is experiencing significant population aging and this phenomenon, inherited from the demographic transition, will intensify in the coming years. Mortality changes, especially at older ages, will contribute greatly to this phenomenon, hence the importance to be aware of the latest and forthcoming developments. It is also imperative to uncover recent and future health trends in the elderly population, and to investigate whether extra years of life gained through increased longevity will be spent in good or bad health. Thus, through this literature review, we first outline the academic debate on the future of mortality, and more specifically of life expectancy at birth. Since the debate essentially crystallized around two main competing views, one that supports sustained mortality gains in the future and one that expect instead these gains to peak, the arguments of each group and the main criticisms they face are exposed. We then provide a detailed account of a concomitant debate on the quality rather than the quantity of years lived. The three competing theories on the future of morbidity - compression of morbidity, expansion of morbidity and dynamic equilibrium - are presented and their relevance is discussed on the basis of empirical data. The difficulties inherent in defining the concepts of health and illness, and to obtain comparable indicators over time and space are highlighted.
    Keywords: mortality, morbidity, life expectancy, healthy life expectancy, limit to the human life span, Canada, industrialized countries
    JEL: J11
    Date: 2011–11
  7. By: Joanne W. Hsu
    Abstract: American women tend to be less financially literate than men, which is consistent with a household division of labor in which men manage finances. However, women also tend to outlive their husbands, so they will eventually need to take over this task. Using a new survey of older couples, I find that women acquire financial literacy as they approach widowhood. At an estimated increase of 0.04 standard deviations per year approaching widowhood, 80 percent of women in the sample would catch up with their husbands prior to the expected onset of widowhood. These findings reflect actual increases by women and are not merely an artifact of cognitive decline among older men. The results are consistent with a model in which the household division of labor breaks down when a spouse dies: women have incentives both to delay acquiring financial knowledge and also to begin learning before widowhood. This paper represents the first empirical examination of the financial literacy of both members of couples and provides a life-cycle interpretation of the gender gap in financial literacy.
    Date: 2011
  8. By: Casper van Ewijk; Maikel Volkerink
    Abstract: <p>Long-term projections for the Netherlands indicate that demand for nontradables – e.g. health care services – will increase relative to supply due to population ageing. If this leads to higher future real exchanges rates this will erode the return of the savings currently made to prepare for ageing.</p><p>This paper explores the magnitude of potential price effects using a modified version of the ‘two country, four commodity framework’ developed by Obstfeld and Rogoff (2005) to explore the exchange rate effects of the balance of payments reversal in the US. When these price effects are substantial, this may have serious consequences for policies to enhance national saving in the Netherlands.</p>
    JEL: E40 F41 J11
    Date: 2011–12
  9. By: Frank T. Denton; Byron G. Spencer
    Abstract: We derive transition probability matrices for chronic health conditions using survey prevalence data. Matrices are constructed for successive age groups and the sequence represents the “age dynamics” of the health conditions for a stationary population – the probabilities of acquiring the conditions, of moving from one chronic conditions state to another, and of dying. One can simulate the life path of a cohort under the initial probabilities, and again under altered probabilities to explore the effects of eliminating a particular condition or reducing its mortality probabilities. We report the results of such simulations and note the general applicability of the methods.
    Keywords: Chronic health conditions, transition probabilities, age dynamics
    JEL: I19 J19
    Date: 2011–11
  10. By: Tosun, Mehmet S. (University of Nevada, Reno)
    Abstract: This paper provides a demographic outlook of the Euro-Mediterranean region and then shows the economic and fiscal consequences of such demographic differences within a two-region model with international labor mobility. International labor mobility is also examined through an externalities framework where brain drain from migration could be taxed by the home countries. Taxing the brain drain has a substantial limiting effect on labor migration and a small negative effect on per worker growth. On the other hand, it could be a solution to the negative externality problem associated with brain drain. It is also found that such tax can raise substantial tax revenue for the SMCs which could be used to enhance human capital in the region.
    Keywords: demographic divide, demographic deficit, population aging, youth bulge, labor mobility, brain drain, overlapping generations, endogenous tax policy, Mediterranean region
    JEL: E62 F22 H23 H24 H41
    Date: 2011–12

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