nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒09‒30
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Behavioral Effects of Social Security Policies on Benefit Claiming, Retirement and Saving By Alan L. Gustman; Thomas L. Steinmeier
  2. Spouses' Retirement and Hours Outcomes: Evidence from Twofold Regression Discontinuity with Differences-in-Differences By Stancanelli, Elena G. F.
  3. Collateral effects of a pension reform in France. By Helene Blake;; Clementine Garrouste
  4. Global Pension Systems and Their Reform: Worldwide Drivers, Trends, and Challenges By Holzmann, Robert
  5. Comparación internacional de sistemas de previsión social By Calabria, Alejandro A.; Rottenschweiler, Sergio
  6. On financing retirement with an aging population By Ellen R. McGrattan; Edward C. Prescott
  7. Macroeconomic Implications of Demographic Changes: A Global Perspective By Ronald Lee
  8. Pension Coverage for Parents and Educational Investment in Children: Evidence from Urban China By Mu, Ren; Du, Yang
  9. Sharing high growth across generations:pensions and demographic transition in China By Zheng Song; Kjetil Storesletten; Yikai Wang; Fabrizio Zilibotti
  10. The Effect of Pension on the Optimized Life Expectancy and Lifetime Utility Level By Shin, Inyong
  11. GINI DP 53: The Redistributive Capacity of Services in the EU By Verbist, G. (Gerlinde); Matsaganis, M. (Manos)
  12. Migration Challenge for PAYG By Gurgen Aslanyan
  13. Demographic Change and Directed Technological Change By KOBAYASHI Keiichiro
  14. Demographics, Redistribution, and Optimal Inflation By James Bullard; Carlos Garriga; Christopher J. Waller
  15. Societal Aging: Implications for Fiscal Policy By Alan J. Auerbach
  16. Welfare-Induced Migration of the Elderly in Japan - Gender differences in welfare migration patterns among the elderly By Katsuyoshi Nakazawa

  1. By: Alan L. Gustman (Dartmouth College); Thomas L. Steinmeier (Texas Tech University)
    Abstract: This paper specifies three behavioral variants of a structural model of retirement and saving to bring predicted Social Security claiming rates closer to the rates observed in the data. The model, estimated with Health and Retirement Study data, is used to examine three potential policies: increasing early entitlement age, increasing normal retirement age, and eliminating payroll taxes after normal retirement age. Behavioral responses to increasing early entitlement age and eliminating the payroll tax are not affected by the behavioral variant used. Predicted effects of increasing the normal retirement age exhibit more sensitivity. Heterogeneity shapes the responses to these policy changes.
    Date: 2012–08
  2. By: Stancanelli, Elena G. F. (Sorbonne Economics Research Center Paris 1 University)
    Abstract: Earlier studies conclude that spouses' retirement strategies are not independent from each other and that policies affecting individuals in a couple are also likely to affect the economic behaviour of their partner. In this study, we exploit retirement age legislation in France as well as a retirement policy change to identify the effect of own and spousal retirement on spouses' hours. To this end, we use a Fuzzy Regression Discontinuity approach combined with Differences in Differences, for both spouses. The data for the analysis are drawn from French Labour Surveys pooled over thirteen years. The sample for the analysis includes over 85,000 dual-earner couples with spouses aged 50 to 70. We find evidence of large and significant jumps in the own retirement probability at the legal early retirement age for both men and women in a couple. We also conclude that the 1993 reform reduced significantly the probability of retirement at the early retirement age for married men while the effect was not significant for married women. Husbands' retirement probability increases significantly when the wife reaches early retirement age while her retirement probability is not responsive to his early retirement age. We conclude that hours fall significantly upon own and partner's retirement for both spouses. On average, her hours fall by 2.7 per cent when he retires while his hours fall by 5 per cent when she retires, implying an average reduction of one hour per week for women and two hours for men if their spouse retires.
    Keywords: ageing, retirement, regression discontinuity, policy evaluation
    JEL: J14 C1 C36 D04
    Date: 2012–08
  3. By: Helene Blake;; Clementine Garrouste
    Abstract: How does the retirement age affect the physical and mental health of seniors? We identify this effect based on the 1993 reform of the French pension system, which was heterogeneously introduced among the population. The French government gradually increased the incentive to work using two tools: the contribution period required for entitlement to a full pension and the number of reference earning years taken to calculate pensions. This created heterogeneity of incentives to work among the population. We use a unique database on health and employment in France in 1999 and 2005, when the cohorts affected by the reform started to retire. Taking the reform as a tool to filter out the potential influence of health on employment choices, we show that retirement improves physical and social health. The more physically impacted are the low-educated individuals. Subsequently, a difference-indifferences approach among the working population, with the control group comprising public sector employees (not concerned by the 1993 reform), finds that the people more affected by the reform, and hence with a stronger incentive to work, were those posting less of an improvement and even a deterioration in their health between 1999 and 2005.
    Date: 2012–07
  4. By: Holzmann, Robert (University of Malaya)
    Abstract: Across the world, pension systems and their reforms are in a constant state of flux driven by shifting objectives, moving reform needs, and a changing enabling environment. The ongoing worldwide financial crisis and the adjustment to an uncertain “new normal” will make future pension systems different from past ones. The objectives of this policy review paper are threefold: (i) to briefly review recent and ongoing key changes that are triggering reforms; (ii) to outline the main reform trends across pension pillars; and (iii) to identify a few areas on which the pension reform community will need to focus to make a difference. The latter includes: creating solutions after the marginalization or, perhaps, demise of Bismarckian systems in countries with high rates of informality; keeping the elderly in the labor market; and addressing the uncertainty of longevity increases in pension schemes.
    Keywords: population aging, longevity, financial crisis, multi pillar pension systems, social pension, NDC, MDC
    JEL: G23 H55 I3 J21 J26
    Date: 2012–08
  5. By: Calabria, Alejandro A.; Rottenschweiler, Sergio
    Abstract: The pension system is an essential component within social security. Due to several reasons, among which the current international financial crisis and the rapid aging of the population that is happening in many countries outstand, throughout these last few years several reforms have been implemented; such as increases in the retirement age, payment facilities to purchase the missing contributions, changes in the types of regimes, etc.-. In this paper we made a comparison between the pension systems of nine selected countries -seven in Latin America and two in Europe – so as to obtain a global view about which is the current situation, the strengths and opportunities that should be pursued and which are the weaknesses to now confront and the threats that might arise in the medium term.
    Keywords: sistemas de previsión social; cobertura previsional; comparación internacional
    JEL: H55 I38 H00
    Date: 2012–03–13
  6. 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. Policy analysts are increasingly advocating a move to a savings-for-retirement system. An apparent problem with this move is the shortage of good savings opportunities given the limited ability of government to honor its debt. We find that there is no problem because there is much more productive capital than commonly assumed in macroeconomic modeling. We also find that eliminating capital income taxes will greatly increase savings opportunities and make a savings-for-retirement system feasible with only a modest amount of government debt. The tax policy changes we consider are phased in smoothly and are relatively modest. 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 capital income taxes will increase the welfare of all birth-year cohorts alive today and particularly the welfare of the yet unborn cohorts.
    Keywords: Debt - United States ; Taxation
    Date: 2012
  7. By: Ronald Lee (Professor of Demography and Economics, University of California, Berkeley (E-mail:
    Abstract: The populations of the World are aging, in both rich and poor countries. Older people work much less than younger adults, and earn far less than their consumption costs. The difference is made up in part by public or private transfers from working age adults, and in part from asset income. As countries grow richer, labor supply at older ages drops while consumption at older ages rises relative to younger, due mainly to the rising costs of publicly provided health care. For these reasons, population aging becomes more costly with economic development. As populations age in the coming decades, support ratios will drop, slowing the growth of per capita consumption by .3% to .8% per year. However, the same processes that lead to population aging also may lead to increased investment in both human capital and in physical and financial assets, raising the capital intensity of the economy and raising labor productivity. The rising labor productivity should offset the declining support ratio, and increased asset income will further offset these declines. However, the extent to which these offsetting processes unfold depends on the institutional structures and public policies that are in place. While population aging will place severe strains on particular public programs, overall, the economic challenges of population aging need not be overwhelming, and need not pose a major threat to economic well-being.
    Keywords: population aging, macroeconomic, demographic transition, human capital, economic growth, support ratio, demand for wealth
    JEL: E2 E6 I2 J11 J14 O11
    Date: 2012–09
  8. By: Mu, Ren (Texas A&M University); Du, Yang (Chinese Academy of Social Sciences)
    Abstract: When social security is established to provide pensions to parents, their reliance upon children for future financial support decreases; and their need to save for retirement also falls. We use the expansion of pension coverage from the state sector to the non-state sector in urban China as a quasi-experiment to analyze the intergenerational impact of social security on educational investments in children. With a difference-in-differences framework, we find a significant increase in the total education expenditure attributable to pension expansion. The results are unlikely to be driven by trends in medical insurance, wages, bonus income, and housing values. They are robust to the inclusion of a large set of control variables and to different specifications, including one based on the instrumental variable method.
    Keywords: pension, education expenditure, gender difference, urban, China
    JEL: J26 J24 O15 D13
    Date: 2012–08
  9. By: Zheng Song (Department of Economics, University of Chicago Booth, Chicago, Illinois, United States); Kjetil Storesletten (Federal Reserve Bank of Minneapolis, Minnesota, United States); Yikai Wang (Department of Economics, University of Zurich, Switzerland); Fabrizio Zilibotti (CEPRA, Institute of Economics, Universita' della Svizzera Italiana)
    Abstract: Intergenerational inequality and old-age poverty are salient isuues in contemporary China. China's aging population threatens the fiscal sustainability of its pension system, a key vehicle for intergenerational redistribution. We analyze the positive and normative effects of alternative pension reforms, using a dynamic general equilibrium model that incorporates population dynamics and productivity growth. Although a reform is necessary, delaying its implementation implies large welfare gains for the (poorer) current generations, imposing only small costs on (richer) future generations. In contrast, a fully funded reform harms current generations, with small gains to future generations. High wage growth is key for these results.
    Keywords: China, credit market imperfections, demographic transition, economic growth, fully funded system, inequality, intergenerational redistribution, labor supply, migration, pensions, poverty, rural-urban reallocation, total fertility rate, wage growth
    JEL: E21 E24 G23 H55 J11 J13 O43 R23
    Date: 2012–07
  10. By: Shin, Inyong
    Abstract: In this paper, we analyze the effect of a pension system on the life expectancy and the lifetime utility level using an optimal dynamic problem of individuals who live in continuous and finite time. Our model yields a number of intriguing results: 1) Life expectancy is not always proportional to lifetime utility. 2) The pension system can make life expectancy longer or shorter. 3) It is not always true that the pension system improves the lifetime utility level.
    Keywords: Pension system; Optimized life expectancy; Lifetime utility level; Health investments
    JEL: H55 I31 C61
    Date: 2012–09
  11. By: Verbist, G. (Gerlinde); Matsaganis, M. (Manos)
    Abstract: Welfare states provide social benefits in cash and in kind. Cash benefits are income transfers, such as retirement pensions, family and unemployment benefits and social assistance. Benefits in kind are commodities directly transferred to recipients at zero or below-market prices (Barr 2012). In Europe, benefits in kind are usually services, such as health, education, child care and care for the elderly. For example, hospital care in most countries is provided either free of charge or at near-zero prices (at the point of use). User fees are even rarer in the case of primary and secondary education: enrolment is compulsory up to a certain age, while tuition is provided free of charge to all children attending publicly funded schools, irrespective of family income. Moreover, child care is often heavily subsidised; kindergartens are run by the state (most commonly local governments) or government-supervised private organisations, while user fees, where applicable, are usually income-related (in the sense that higher-income families pay higher fees, while lower-income ones pay less or are fully exempted). Elderly care may also be available on similar terms; besides, several countries have developed long-term care insurance schemes, to cater for the future needs of an ageing population. ...
    Date: 2012–07
  12. By: Gurgen Aslanyan
    Abstract: Immigration has been popularised in the economics literature as a tool to balance the troubled PAYG pension systems. A pivotal research by Razin and Sadka showed that unskilled immigration can surmount the pension problem and, further, boost the general welfare in the host economy. However a large strand of current economics literature is engaged in identifying mechanisms through which unskilled immigration, while solving the pension problem, causes undesired shifts in general welfare. This work shows that actually recurring unskilled immigration may challenge the entire pension system and decrease the pension benefits themselves.
    Keywords: Public Pensions, PAYG, Unskilled Migration
    JEL: J18 F22 H55 E61
    Date: 2012–09
  13. By: KOBAYASHI Keiichiro
    Abstract: In this paper, we analyze the implications of demographic change, i.e., the aging of society, on the direction of technological change and the rate of economic growth.<br />Taking demographic change as an exogenous event, the simple variant of Acemoglu's theory of directed technical change implies that (1) the elderly-care related technology must be a promising area of innovation and (2) the optimal growth rate must be lower in aging societies than in young ones, suggesting that the slowdown of economic growth may be an optimal response of the economy to population aging. The analytical framework is simple and robust such that this model can be used to assess various policy options concerning the demographic change in Japan and other countries.
    Date: 2012–09
  14. By: James Bullard (President and Chief Executive Officer, Federal Reserve Bank of St. Louis); Carlos Garriga (Research Officer, Federal Reserve Bank of St. Louis); Christopher J. Waller (Senior Vice President and Director of Research, Federal Reserve Bank of St. Louis (E-mail:
    Abstract: We study the interaction between population demographics, the desire for redistribution in the economy, and the optimal inflation rate in a deterministic economy with capital. The intergenerational redistribution tension is intrinsic in the general equilibrium life-cycle models we use. Young cohorts do not initially have any assets and wages are the main source of income; they prefer relatively low real interest rates, relatively high wages, and relatively high rates of inflation. Older generations work less and prefer higher rates of return from their savings, relatively low wages, and relatively low inflation. In the absence of intergenerational redistribution via lump-sum taxes and transfers, the constrained efficient competitive equilibrium entails optimal distortions on relative prices. We allow the planner to use inflation to try to achieve the optimal distortions. In the economy changes in the population structure are interpreted as the ability of a particular cohort to influence the redistributive policy. When the old have more influence on the redistributive policy, the economy has a relatively low steady state level of capital and a relatively low steady state rate of inflation. The opposite happens as young cohorts have more control of policy. These results suggest that aging population structures like those in Japan may contribute to observed low rates of inflation or even deflation.
    Keywords: monetary policy, inflation bias, deflation, central bank design
    JEL: E4 E5 D7
    Date: 2012–09
  15. By: Alan J. Auerbach (Professor of Economics and Law, University of California, Berkeley (E-mail:
    Abstract: This paper considers implications of population aging for the conduct of fiscal policy, grouping the issues into four areas, focusing on the impact of aging on: (1) the size of government budget imbalances; (2) the composition of government spending and government budget flexibility; (3) the composition of tax collections and the desirability of alternative tax systems; and (4) the effectiveness of fiscal policy as a tool for stabilization. Societal aging puts considerable stress put on public sector finances because of large, unfunded and age-based entitlement programs. Even if existing programs can be modified, a growing share of government budgets will be devoted to old-age entitlement programs, and both economics and politics suggest that this will reduce the flexibility of budget determinations. An aging population makes certain tax bases - in particular, consumption taxes, and wealth transfer taxes as well - more productive and efficient. The consequences of aging are less clear as to stabilization policy, both with respect to the effectiveness of automatic stabilizers and the ability of government to take effective discretionary actions.
    Keywords: deficits, fiscal imbalances, tax reform, political economy, stabilization policy
    JEL: E62 H21 H62
    Date: 2012–09
  16. By: Katsuyoshi Nakazawa (University of Toyo)
    Abstract: In Japan, there is a shortage of long-term care facilities for the elderly and families are having difficulty supporting the elderly at home. Thus, the elderly in Japan often want to move to municipalities that have a greater availability in long-term care facilities. The purpose of this paper is to examine whether there is a gender difference in the elderly’s welfare migration patterns in Japan. The analysis was performed by calculating net migration data by gender and age group using available plural statistical materials. Results showed a clear gender difference for both the early-stage and late-stage elderly. Results also revealed that the hypothesis of welfare migration is more appropriate for the late-stage elderly rather than the early-stage elderly, and confirmed that welfare-induced migration was a trend among males, especially those at the early-stage. The effect of the long-term care facilities was found to be the strongest for migration patterns among late-stage elderly females. In addition, the pattern for female migration showed consistent inflow to the larger cities. Implications of these findings on long-term care policy in Japan are discussed.
    JEL: H73 H75 I38 R23
    Date: 2012

This nep-age issue is ©2012 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.