nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒02‒03
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Population Ageing and PAYG Pensions in the OLG Model By Cipriani, Giam Pietro
  2. Take a chance on me – Can the Swedish premium pension serve as a role model for Germany’s Riester scheme? By Haupt, Marlene; Kluth, Sebastian
  3. The Great Recession, Older Workers with Disabilities, and Implications for Retirement Security By Purvi Sevak; Lucie Schmidt; Onur Altindag
  4. Social Spending and Income Redistribution in Argentina During the 2000s: the Rising Role of Noncontributory Pensions By Nora Lustig; Carola Pessino
  5. Designing an Optimal Public Pension System By Fujii, Takao; Hayashi, Fumiaki; Iritani, Jun; Oguro, Kazumasa
  6. Motives for Bequests within the Middle Class By John Laitner; Amanda Sonnega
  7. The Development of Long-Term Care in Post-Socialist Member States of the EU By Stanislawa Golinowska; Agnieszka Sowa
  8. Raising the Social Security Payroll Tax Cap: How Many Workers Would Pay More? By Nicole Woo; John Schmitt; Janelle Jones
  9. How Should Benefits and Costs Be Discounted in an Intergenerational Context? By Richard S. J. Tol; Kenneth J. Arrow; Maureen L. Cropper; Christian Gollier; Ben Groom; Geoffrey M. Heal; Richard G. Newell; William D. Nordhaus; Robert S. Pindyck; William A. Pizer; Paul R. Portney; Thomas Sterner; Martin L. Weitzman

  1. By: Cipriani, Giam Pietro (University of Verona)
    Abstract: This paper shows the effects on a pay-as-you-go pension system of the demographic change in the standard overlapping generations model. Firstly, we consider a setting with exogenous fertility and then a model with endogenous fertility. In both cases, population ageing due to increased longevity implies a reduction in pensions payouts.
    Keywords: PAYG pensions, fertility, longevity
    JEL: J13 H55
    Date: 2013–01
  2. By: Haupt, Marlene; Kluth, Sebastian (Munich Center for the Economics of Aging (MEA))
    Abstract: In the course of the ongoing debate regarding the critique of the German Riester pension the Swedish premium pension has often been referred to as a role model regarding potential amendments and reforms. The Swedish pension reform of 1998 has led to a reorganization towards a stratified scheme, consisting of a pay-as-you-go and a fully funded element. The mandatory implementation of the Swedish premium pension has proved to be the major difference in comparison to the voluntary German Riester pension. In addition, numerous differences between the two systems can be outlined, of which most are due to the differing methods of implementation in the country’s old age provision system. This paper draws a comparison between the two systems with a special focus on the cost structure and evaluates the possibilities and limitations that arise from a complete adaptation of the Swedish premium pension (German premium pension) as well as a partial modification of the existing Riester scheme (Swedish-Riester). It becomes evident that costs are significantly lower in the Swedish system thanks to a rebate system and the centralization of administrative tasks within the Swedish Pensions Agency. However, despite systematic differences between the two schemes, the German Riester pension can particularly benefit from the Swedish premium pension with regard to transparent, coherent and consistent product information.
    JEL: D18 G23 H55
    Date: 2013–01–20
  3. By: Purvi Sevak (Hunter College and Graduate Center, CUNY); Lucie Schmidt (Williams College); Onur Altindag (Graduate Center, CUNY)
    Abstract: Evidence suggests that older workers with disabilities have been hit particularly hard by the recent recession. The increased difficulty in finding a job faced by individuals with disabilities, combined with the longer spells of unemployment experienced by all workers in this recession, could mean that laid-off disabled workers in their pre-retirement years may never return to work. In this paper, we use data from the 2004-2010 waves of the Health and Retirement Study to examine how the great recession has affected workers with chronic health conditions that put them at greater risk of disability. Our results suggest that increases in job losses were 30% greater for those with greater underlying risk of disability than for the general HRS population, and decreases in consumption were 20% greater. These results have important implications for the well-being of disabled individuals nearing retirement.
    Date: 2012–11
  4. By: Nora Lustig (Department of Economics, Tulane University); Carola Pessino (School of Government and Executive Director, Centro de Investigaciones y Evaluación en Economía Social para el Alivio de la Pobreza, Universidad Torcuato Di Tella, Buenos Aires, Argentina)
    Abstract: Between 2003 and 2009, Argentina’s social spending as a share of GDP increased by 7.6 percentage points. Marginal benefit incidence analysis for 2003, 2006, and 2009 suggests that the contribution of cash transfers to the reduction of disposable income inequality and poverty rose markedly between 2006 and 2009 primarily due to the launching of a noncontributory pension program – the pension moratorium – in 2004. Noncontributory pensions as a share of GDP rose by 2.2 percentage points between 2003 and 2009 and entailed a redistribution of income to the poor, and from the formal sector pensioners with above minimum pensions to the beneficiaries of the pension moratorium. The redistributive impact of the expansion of public spending on education and health was also sizable and equalizing, but to a lesser degree. An assessment of fiscal funding sources puts the sustainability of the redistributive policies into question, unless nonsocial spending is significantly cut.
    Keywords: social spending, benefit incidence, inequality, poverty, Argentina
    JEL: D31 H22 I38
    Date: 2012–11
  5. By: Fujii, Takao; Hayashi, Fumiaki; Iritani, Jun; Oguro, Kazumasa
    Abstract: This paper uses a two-period overlapping generations model in order to provide a theoretical design for an optimal public pension system based on a partial equilibrium analysis. Household preferences only depend on two periods consumption and leisure and is homogeneous of degree m with respect to consumption in the working and retired periods. We present characteristic features of an optimal public pension system in this paper. First, differences in the population growth rate do not affect the relative level of the optimal net lifetime burden rate of each generation. Second, if m≠0 or m<1, the optimal public pension system can be expressed explicitly. Third, the difference between the market time-preference rate and social time-preference rate provides a crucial insight into the optimal burden rate of each generation.
    Keywords: Overlapping generations model, public pension, optimal burden rate
    JEL: D30 D60 D90 H21 H60
    Date: 2013–01
  6. By: John Laitner (University of Michigan); Amanda Sonnega (University of Michigan)
    Abstract: The life-cycle model of household behavior forms the basis for most economic analysis of Social Security, private pensions, and retirement. This project seeks to extend the usefulness of the life-cycle model by considering the role of middle-class inheritances and bequests. We use HRS data. Prior work by the authors identifies key information in the HRS on the sources of private intergenerational transfers, and it shows that the frequency of couples’ inheritances from both spouses’ family lines is higher than random behavior would imply. Using additional HRS data on the ratio of parent-to-child lifetime incomes, we analyze the motives behind HRS bequests. We find support for an unintentional transfer model in which bequests arise from residual, unspent parent life-cycle resources. And, we show that our model can account for the frequency of dual inheritances that earlier work revealed.
    Date: 2012–11
  7. By: Stanislawa Golinowska; Agnieszka Sowa
    Abstract: Long-term care (LTC) in the new EU member states, which used to belong to the former socialist countries, is not yet a legally separated sector of social security. However, the ageing dynamics are more intensive in these states than in the old EU member states. This paper analyses the process of creating an LTC sector in the context of institutional reforms of social protection systems during the transition period. The authors explain LTC’s position straddling the health and social sectors, the underdevelopment of formal LTC, and the current policies regarding the risk of LTC dependency. The paper is based mainly on the analysis of information provided by country experts in the ANCIEN project.
    Keywords: Labor market, social policy and social services, Europe, long-term care, social sector reform, social policy
    JEL: I18 I31 J11 J18
    Date: 2013–01
  8. By: Nicole Woo; John Schmitt; Janelle Jones
    Abstract: On January 1, the maximum amount of annual earnings subject to the Social Security tax – a.k.a. the payroll tax cap – increased to $113,700. Every year, this cap is adjusted to keep up with inflation. Many Americans are not aware that income above the cap is not taxed by Social Security. In other words, workers who make $113,700 or less per year pay a higher Social Security payroll tax rate than those who make more. To help alleviate Social Security’s long-term budget shortfall, raising – or even eliminating – the cap has gotten some attention from policy makers. This paper finds that just 1 in 20 workers -- the wealthiest -- would be affected if the cap were eliminated entirely, and only 1 in 75 would be affected if the cap were applied to earnings over $250,000. In addition, the share of workers who would pay more varies greatly according to gender, race, state and age.
    Keywords: CPI, social security, social security cap, inequality, payroll tax cap,
    JEL: H H5 H55 H2 H3
    Date: 2013–01
  9. By: Richard S. J. Tol (Department of Economics, University of Sussex, Brighton, United Kingdom; Institute for Environmental Studies, Vrije Universiteit, Amsterdam, Netherlands; Department of Spatial Economics, Vrije Universiteit, Amsterdam, Netherlands); Kenneth J. Arrow; Maureen L. Cropper; Christian Gollier; Ben Groom; Geoffrey M. Heal; Richard G. Newell; William D. Nordhaus; Robert S. Pindyck; William A. Pizer; Paul R. Portney; Thomas Sterner; Martin L. Weitzman
    Abstract: In September 2011, the US Environmental Protection Agency asked 12 economists how the benefits and costs of regulations should be discounted for projects that affect future generations. This paper summarizes the views of the panel on three topics: the use of the Ramsey formula as an organizing principle for determining discount rates over long horizons, whether the discount rate should decline over time, and how intra- and intergenerational discounting practices can be made compatible. The panel members agree that the Ramsey formula provides a useful framework for thinking about intergenerational discounting. We also agree that theory provides compelling arguments for a declining certainty-equivalent discount rate. In the Ramsey formula, uncertainty about the future rate of growth in per capita consumption can lead to a declining consumption rate of discount, assuming that shocks to consumption are positively correlated. This uncertainty in future consumption growth rates may be estimated econometrically based on historic observations, or it can be derived from subjective uncertainty about the mean rate of growth in mean consumption or its volatility. Determining the remaining parameters of the Ramsey formula is, however, challenging.
    Keywords: discount rate, uncertainty, declining discount rate, benefit-cost analysis
    Date: 2013–01

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