nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒06‒24
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Saving and Wealth: The Adequacy of Household Saving in Canada By Liu, Huju<br /> Ostrovsky, Yuri<br /> Zhou, Jie
  2. How Portfolios Evolve After Retirement: Evidence From Australia By Alexandra Spicer; Olena Stavrunova; Susan Thorp
  3. Adjusting the earnings-related pension system to low growth By Valkonen, Tarmo; Lassila, Jukka
  4. Social Spending and Income Redistribution in Argentina during the 2000s: The Rising Role of Noncontributory Pensions By Nora Lustig; Carola Pessino
  5. Propagation and Smoothing of Shocks in Alternative Social Security Systems By Alan Auerbach; Lorenz Kueng; Ronald Lee
  6. An Assessment of the 2001 Reform of the Railroad Retirement Program By Steven A. Sass
  7. Social Security and the 2001 Reform of the Railroad Retirement Program By Steven A. Sass
  8. A Tall Story: Characteristics, Causes, and Consequences of Stature Loss By Alan Fernihough; Mark E. McGovern
  9. Donative Behavior at the End of Life By Jonathan Meer; Harvey S. Rosen
  10. A Life-Cycle Model with Ambiguous Survival Beliefs By Max Groneck; Alexander Ludwig; Alexander Zimper
  11. Growth on a Finite Planet: Resources, Technology, and Population in the Long Run By Pietro F. Peretto; Simone Valente
  12. Medicaid Insurance in Old Age By Mariacristina De Nardi; Eric French; John Bailey Jones
  13. Informal Care and Caregiver's Health By Young Kyung Do; Edward C. Norton; Sally Stearns; Courtney H. Van Houtven
  14. World Population Growth and Fertility Patterns, 1960-2000. A Simple Model Explaining the Evolution of World’s Fertility During the Second Half of the 20th Century By Enriqueta Camps

  1. By: Liu, Huju<br /> Ostrovsky, Yuri<br /> Zhou, Jie
    Abstract: Population aging and the recent global financial crisis underscore the importance of the discussions of the adequacy of retirement preparation in Canada and the soundness of the Canadian retirement income system. The focus of this study is to examine whether the accumulated private savings of Canadian households is adequate for their retirement, given their expected entitlement to public and private pension when they retire.
    Keywords: Income, pensions, spending and wealth, Seniors, Household assets, debts and wealth, Household spending and savings, Income, pensions and wealth, Work and retirement
    Date: 2013–06–14
  2. By: Alexandra Spicer (Economics Discipline Group, University of Technology, Sydney); Olena Stavrunova (Economics Discipline Group, University of Technology, Sydney); Susan Thorp (Finance Discipline Group, UTS Business School, University of Technology, Sydney)
    Abstract: Households in many developed economies now reach retirement with lump sums of financial wealth accumulated through defined contribution retirement plans. Managing wealth from individual accumulations and public provision is critical to retirement welfare. We study the dynamics of retirement wealth and asset allocation using the three wealth waves of the Household Income and Labour Dynamics in Australia (HILDA) panel survey. We find significant influences of ageing on asset holdings with older households preferring less risk and more liquidity, while maintaining ownership of the family home. In terms of absolute changes in wealth the average retired household accumulated in 2002-06 and decumulated 2006-10 in line with financial market trends. More diversified households did better. The probability of retired households depleting non-housing wealth to less than one month?s Age Pension payment increased over the sample. Finally, in contrast to the US, the overall effect of health shocks on the wealth of retired Australian households is minimal.
    Keywords: Retirement wealth; Life-cycle saving; Public pension; Portfolio choice
    JEL: D91 E21 G11
    Date: 2013–06–01
  3. By: Valkonen, Tarmo; Lassila, Jukka
    Abstract: This study analyses the adjustment of the Finnish earnings-related pension system to very low economic growth. The results show that a permanently lower growth rate of the wage bill would raise only moderately the pension contribution rates in the long term. This is because also the benefits are partially linked to wages. But if the rate of return on the pension fund investments would also go down, the contribution rates would increase significantly. External competitiveness and employment would weaken as well as the position of future generations. The study presents a pension reform that stabilizes the contribution rate by raising the retirement age and cutting pensions. These kind of specific reforms are not, however, optimal due to demographic and economic uncertainty. A better solution would be automatic adjustment rules that are designed to provide accepted redistribution of income between various generations.
    Keywords: Economic growth, earnings-related pension system, intergenerational redistribution
    JEL: H55 D58
    Date: 2013–06–17
  4. By: Nora Lustig (Tulane University); Carola Pessino (Universidad del CEMA)
    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 sizeable and equalizing, but to a lesser degree. An assessment of fiscal funding sources puts the sustainability of the redistributive policies into question, unless non-social spending is significantly cut.
    Keywords: social spending, benefit incidence, inequality, poverty, Argentina
    JEL: D31 H22 I38
    Date: 2013–01
  5. By: Alan Auerbach; Lorenz Kueng; Ronald Lee
    Abstract: Even with well-developed capital markets, there is no private market mechanism for trading between current and future generations, so a potential role for public old-age pension systems is to spread economic and demographic shocks among different generations. This paper evaluates the smoothing and propagation of shocks of three pay-as-you-go public pension schemes, based on the actual U.S. and German systems, which vary in the extent to which they rely on tax adjustments versus benefit adjustments to provide annual cash-flow budget balance. Modifying the Auerbach-Kotlikoff (1987) dynamic general-equilibrium overlapping generations model to incorporate realistic patterns of fertility and mortality and shocks to productivity, fertility and mortality, we evaluate the effectiveness of the three public pension systems at spreading the effects of such shocks. We find that the systems, particularly those that rely to some extent on tax adjustments, are effective at spreading fertility and mortality shocks, but that this is not the case for productivity shocks, for which the pension systems actually tend to concentrate the economic impact. These results suggest that both system design and the source of shocks are important factors in determining the potential of public pension arrangements to spread the burden of shocks.
    JEL: H22 H53 J11
    Date: 2013–06
  6. By: Steven A. Sass
    Abstract: The primary concern of Congress in enacting the Railroad Retirement and Survivor’s Improvement Act of 2001 was the risk of political influence on investment decisions. A secondary concern was the financial performance of the redesigned program. The experience to date supports the notion that reforms created an exemplary manager of public pension assets. Of more concern is the financial performance of the redesigned program. The program weathered the challenging financial conditions during the first decade of reform. The experience nevertheless exposed limitations in the ability of its innovative automatic stabilizer to steady the program’s finances.
    Date: 2013–06
  7. By: Steven A. Sass
    Abstract: The experience of the reformed Railroad Retirement program has lessons for initiatives that would invest Social Security assets in equities: * To address the risk in equity investment, Congress would likely require an automatic adjustment mechanism to keep the program “on track.” * The adjustment mechanism should address surpluses as well as shortfalls, and cannot be expected to provide a complete solution to the problem of risk. * Such a mechanism presupposes a program in balance, or moving toward balance. The investment of Social Security assets in equities would need to be part of a package that produced a sustainable Social Security program. * The adjustment mechanism would respond to any shock, not just financial shocks. Had such a mechanism always been in place, it would have introduced adjustments to the Social Security program, without the need for Congress to act, in response to the demographic shocks that created the program’s current long-term funding shortfall.
    Date: 2013–06
  8. By: Alan Fernihough (Institute for International Integration Studies, Trinity College Dublin); Mark E. McGovern (Harvard Center for Population and Development Studies)
    Abstract: Height is widely used as an objective measure of health status. It is commonly used in the large body of research evaluating welfare trends in historic populations and the long-run impacts of childhood environment. However, few research papers have examined the extent, causes or consequences of stature loss in aging populations. This is surprising, as many studies rely on the assumption that height is fixed in late adolescence. Using repeated observations on objectively measured data from the English Longitudinal Study of Ageing (ELSA), we document that stature loss is an important phenomenon among older individuals, and demonstrate how the use of unadjusted height will dramatically overstate health improvements for younger birth cohorts in cross sectional data. We show that there is an absence of consistent predictors of stature loss at the individual level. However, we exploit the panel element of the ELSA survey to show how deteriorating health and stature loss occur in tandem. While our analysis details the inherent bias of height measurements in older populations, we do not find that significant differences arise from the use of unadjusted height as an input in typical empirical health production function models.
    Keywords: Height, Stature Loss, Early Life Conditions, Health, Aging
    JEL: I10 I12 J11
    Date: 2013–05
  9. By: Jonathan Meer; Harvey S. Rosen
    Abstract: A general finding in the empirical literature on charitable giving is that among older individuals, both the probability of giving and the conditional amount of donations decrease with age, ceteris paribus. In this paper, we use data on giving by alumni at an anonymous university to investigate end-of-life giving patterns. Our main finding is that taking into account the approach of death substantially changes the age-giving profile for the elderly–in one segment of the age distribution, the independent effect of an increase in age on giving actually changes from negative to positive. We examine how the decline in giving as death approaches varies with the length of time that a given condition is likely to bring about death, and the individual’s age when he died. We find that for individuals who died from conditions that bring about death fairly quickly, there is little decline in giving as death approaches compared to those who died from other causes. Further, the decline in giving as death approaches is steeper for the elderly (for whom death is less likely to be a surprise) than for the relatively young. These findings suggest that our primary result, that failing to take into account the approach of death leads to biased inferences with respect to the age-giving profile, is not merely an artifact of some kind of nonlinearity in the relationship between age and giving.
    JEL: D64 H41 I23 J14
    Date: 2013–06
  10. By: Max Groneck; Alexander Ludwig; Alexander Zimper
    Abstract: On average, "young" people underestimate whereas "old" people overestimate their chances to survive into the future. We adopt a Bayesian learning model of ambiguous survival beliefs which replicates these patterns. The model is embedded within a non-expected utility model of life-cycle consumption and saving. Our analysis shows that agents with ambiguous survival beliefs (i) save less than originally planned, (ii) exhibit undersaving at younger ages, and (iii) hold longer on to their assets than their rational expectations counterparts who correctly assess survival probabilities. Our ambiguity-driven model therefore simultaneously accounts for three important empirical findings on household saving behavior.
    JEL: D91 D83 E21
    Date: 2013–05–15
  11. By: Pietro F. Peretto; Simone Valente
    Abstract: We study the interactions between technological change, resource scarcity and population dynamics in a Schumpeterian model with endogenous fertility. We find a pseudo-Malthusian equilibrium in which population is constant and determined by resource scarcity while income grows exponentially. If labor and resources are substitutes in production, income and fertility dynamics are self-balancing and the pseudo-Malthusian equilibrium is the global attractor of the system. If labor and resources are complements, income and fertility dynamics are self-reinforcing and drive the economy towards either demographic explosion or collapse. Introducing a minimum resource requirement per capita, we obtain constant population even under complementarity.
    Keywords: Endogenous Innovation, Resource Scarcity, Population Growth, Fertility Choices
    JEL: E10 L16 O31 O40
    Date: 2013
  12. By: Mariacristina De Nardi; Eric French; John Bailey Jones
    Abstract: The old age provisions of the Medicaid program were designed to insure poor retirees against medical expenses. However, it is the rich who are most likely to live long and face expensive medical conditions when very old. We estimate a rich structural model of savings and endogenous medical spending with heterogeneous agents, and use it to compute the distribution of lifetime Medicaid transfers and Medicaid valuations across single retirees. We find that retirees with high lifetime incomes can end up on Medicaid, and often value Medicaid’s insurance features the most, as they face a larger risk of catastrophic medical needs at old ages, and face the greatest consumption risk. Finally, our compensating differential calculations indicate that retirees value Medicaid insurance at more than its actuarial cost, but that most would value expansions of the current Medicaid program at less than cost.
    JEL: D11 D14 D31 E21 H2 I14
    Date: 2013–06
  13. By: Young Kyung Do; Edward C. Norton; Sally Stearns; Courtney H. Van Houtven
    Abstract: This study aims to measure the causal effect of informal caregiving on the health and health care use of women who are caregivers, using instrumental variables. We use data from South Korea, where daughters and daughters-in-law are the prevalent source of caregivers for frail elderly parents and parents-in-law. A key insight of our instrumental variable approach is that having a parent-in-law with functional limitations increases the probability of providing informal care to that parent-in-law, but a parent-in-law's functional limitation does not directly affect the daughter-in-law's health. We compare results for the daughter-in-law and daughter samples to check the assumption of the excludability of the instruments for the daughter sample. Our results show that providing informal care has significant adverse effects along multiple dimensions of health for daughter-in-law and daughter caregivers in South Korea.
    JEL: I1
    Date: 2013–06
  14. By: Enriqueta Camps
    Abstract: In this paper we attempt to describe the general reasons behind the world population explosion in the 20th century. The size of the population at the end of the century in question, deemed excessive by some, was a consequence of a dramatic improvement in life expectancies, attributable, in turn, to scientific innovation, the circulation of information and economic growth. Nevertheless, fertility is a variable that plays a crucial role in differences in demographic growth. We identify infant mortality, female education levels and racial identity as important exogenous variables affecting fertility. It is estimated that in poor countries one additional year’ of primary schooling for women leads to 0.614 child less per couple on average (worldwide). While it may be possible to identify a global tendency towards convergence in demographic trends, particular attention should be paid to the case of Africa, not only due to its different demographic patterns, but also because much of the continent’s population has yet to experience improvement in quality of life generally enjoyed across the rest of the planet.
    Keywords: demographic transition, female education, infant mortality, race, convergence
    JEL: J1 J13 J15 J16 N3
    Date: 2013–05

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