nep-age New Economics Papers
on Economics of Ageing
Issue of 2015‒06‒20
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Political (In)Stability of Social Security Reform By Joanna Tyrowicz; Krzysztof Makarski
  2. Discounting Pension Liabilities: Funding versus Value By Jeffrey R. Brown; George G. Pennacchi
  3. Does Mortality Differ Between Public and Private Sector Workers? By Alicia H. Munnell; Jean-Pierre Aubry; Geoffrey T. Sanzenbacher
  4. Using Engel Curves to Estimate CPI Bias for the Elderly By Scrimgeour, Dean; Gorry, James
  5. Maduración del Sistema Previsional. Proyecciones y agenda By Cecilia Dassatti; Natalia Mariño
  6. Analysis of the Performance of the Management of the Automatic Balancing Mechanism By Filipe Aleman Serrano
  7. Measuring Recovery: Why the Prime-Age EPOP Ratio Tells Us to Not Raise Interest Rates By Nicholas Buffie
  8. The effect on mental health of retiring during the economic crisis By Liudmila Antonova; Michele Belloni; Elena Meschi; Giacomo Pasini
  9. Home Sweet Home? Public Financing and Inequalities in the use of Home Care Services in Europe By Vincenzo Carrieri; Cinzia Di Novi; Cristina Orso
  10. Medical Spending of the U.S. Elderly By Mariacristina De Nardi; Eric French; John Bailey Jones; Jeremy McCauley
  11. Savings After Retirement: A Survey By Mariacristina De Nardi; Eric French; John B. Jones
  12. The Political Economy of Social Security Funding: Why Social VAT Reform? By Hideki Konishi
  13. Did Longer Lives Buy Economic Growth? From Malthus to Lucas and Ben-Porath By David de la Croix
  14. Age and the use of various sources of information by adult Poles By Alicja Grze
  15. Optimal education in times of ageing: The dependency ratio in the Uzawa-Lucas growth model By Edle von Gaessler A.K.U.; Ziesemer T.H.W.
  16. A Good Life for all - A European development model By Andreas Novy

  1. By: Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics)
    Abstract: In this paper we consider an economy populated by overlapping generations, who vote on abolishing the funded system and replacing it with the pay-as-you-go scheme (i.e. unprivatizing the pension system). We compare politically stable and politically unstable reforms and show that even if the funded system is overall welfare enhancing, the cohort distribution of benefits along the transition path turns unprivatizing social security politically favorable.
    Keywords: pension system reform, time inconsistency, welfare
    JEL: H55 D72 C68 E17 E27
    Date: 2015
  2. By: Jeffrey R. Brown; George G. Pennacchi
    Abstract: We argue that the appropriate discount rate for pension liabilities depends on the objective. In particular, if the objective is to measure pension under- or over- funding, a default-free discount rate should always be used, even if the liabilities are themselves not default-free. If, instead, the objective is to determine the market value of pension benefits, then it is appropriate that discount rates incorporate default risk. We also discuss the choice of a default-free discount rate. Finally, we show how cost-of-living adjustments (COLAs) that are common in public pensions can be accounted for and valued in this framework.
    JEL: G20 H55 J26
    Date: 2015–06
  3. By: Alicia H. Munnell; Jean-Pierre Aubry; Geoffrey T. Sanzenbacher
    Abstract: Defined benefit plans pay pension benefits from retirement until death. Thus, the longer workers live, the higher the expense for the plan. On average, states and localities assume their workers will live slightly than longer private sector workers. This brief asks a simple question: do state and local workers actually live longer on average than their private sector counterparts? If so, why? The discussion proceeds as follows. The first section explains the nature and limitations of the available data – the National Longitudinal Mortality Study. The second section presents the percentage of public and private sector workers ages 55-64 who died within either an 11-year period or a separate 6-year period after being interviewed. The third section uses regression analysis to assess how various factors impact the likelihood of dying. The final section concludes that public sector workers – especially women – do live longer than their private sector counterparts and that most of the difference can be explained by the higher education levels of public sector workers.
    Date: 2015–06
  4. By: Scrimgeour, Dean (Department of Economics, Colgate University); Gorry, James (Department of Economics, Colgate University)
    Abstract: We use shifts in food Engel curves among the U.S. elderly to estimate the extent of Consumer Price Index (CPI) bias specific to this population. Over the last thirty years the share of total expenditure devoted to food has declined more rapidly for elderly-headed households than for other households. This decline is not explained by a more rapid increase in measured total expenditure for the elderly, or by relative change in other covariates such as household composition. We present this as evidence that the true cost of living increased more slowly for the elderly than for the nonelderly over this period, in contrast to conventional wisdom that the elderly face a higher inflation rate.
    Keywords: Engel curve, CPI bias, cost of living, retirement, elderly
    JEL: E31 J14
    Date: 2015–06–01
  5. By: Cecilia Dassatti (Banco Central del Uruguay); Natalia Mariño (Banco Central del Uruguay)
    Abstract: The aim of this study is to give a diagnose of the current Pension System from a 30-year forecast of its main variables. As a result, we quantify the effect of the System’s maturity on the balance sheet of Banco de Seguros del Estado (currently the only insurance company in charge of the payment of retirement pensions). The relevance of this analysis is based on the proximity of the moment when the number of annuities from the New Pension System increases significantly and the need for a deeper analysis of the current regulatory design
    Abstract: El objetivo de este trabajo es hacer un diagnóstico del Sistema Previsional en base a una proyección de las principales variables del Sistema para un horizonte de 30 años. Como resultado, se obtiene una medida del impacto de la maduración del Sistema sobre el balance del Banco de Seguros del Estado (actualmente la única empresa aseguradora encargada del pago de prestaciones jubilatorias). La relevancia del análisis se justifica en la medida en que se aproxima el momento en el cual el número de jubilados por el sistema mixto aumente significativamente, razón por la cual es pertinente analizar el diseño regulatorio actual.
    Keywords: Pension System, AFAP, Insurance Company, interest rate, mortality table; Sistema Previsional, AFAP, Empresa Aseguradora, tasa de interés técnica, tabla de mortalidad
    JEL: C18 C82 E23 E24 J21 L16 L70
    Date: 2014
  6. By: Filipe Aleman Serrano (Ph.D. student in Management, University of Évora and CEFAGE)
    Abstract: Starting from an equilibrium state it is developed a theoretical study on the performance of the management of the Swedish notional defined contribution (NDC) system, under a set of stress scenarios, in terms of solvency and equity with and without its automatic balancing mechanism. The solvency analysis comprises its intrinsic and long term performance. The solvency and equity performance of the Swedish NDC are also analysed, when a new contributory regime based on a notional defined contribution system is immediately adopted to the Portuguese economic and demographic environment, as of the beginning of 2014, inspired by the principles of the Swedish model, abandoning the old age public pension scheme in force in Portugal.
    Keywords: Notional defined contributions accounts; Automatic balancing mechanism; Solvency; Equity; Stress test scenarios; Swedish Public Pension system.
    JEL: D63 H55
    Date: 2015
  7. By: Nicholas Buffie
    Abstract: Working people between the ages 25 to 54 are typically referred to as “prime-age” workers, meaning that most are old enough to be done with school but are too young to be retired. This is the period in people’s lives when they are most likely to be employed. By examining the employment-to-population (EPOP) ratio for prime-age Americans, we can eliminate the problems posed by the Bureau of Labor Statistics’ (BLS) definition of “unemployment” and the changing age distribution of the population.
    Keywords: recovery, recession, EPOP, employment-to-population, ratio, prime-age, race, ethnicity, sex
    JEL: E J J0 J2 J15 J16 J21 J11 E5 E6 E58
    Date: 2015–06
  8. By: Liudmila Antonova (Department of Economics, University of Venice Cà Foscari); Michele Belloni (Department of Economics, University of Venice Cà Foscari); Elena Meschi (Department of Economics, University of Venice Cà Foscari); Giacomo Pasini (Department of Economics, University of Venice Cà Foscari)
    Abstract: This paper investigates the causal impact of retirement on late life depression, a growing concern for public health as major depressive disorders are the second leading cause of disability. We shed light on the role of economic conditions in shaping the effect of retirement on mental health by exploiting the time and regional variation in the severity of the economic crisis across ten European countries over the 2004-2013 period. We use data from four waves of the Survey of Health, Ageing and Retirement in Europe (SHARE) and address the potential endogeneity of retirement decision to mental health by applying a fixed-effect instrumental variable approach. Results indicate that retirement improves mental health of men, but not of women. This effect is stronger for those men working in regions that are severely hit by the economic crisis and in blue-collar jobs. These findings may be explained by the worsening of working conditions and the rise in job insecurity stemming from the economic downturn: In these circumstances, the exit from the labor force is perceived as a relief.
    Keywords: depression, stress, retirement, crisis
    JEL: I10 J26 J28
    Date: 2015
  9. By: Vincenzo Carrieri (Department of Economics and Statistics, University of Salerno; Health, Econometrics and Data Group, University of York.); Cinzia Di Novi (Department of Economics, University Of Venice Cà Foscari); Cristina Orso (Department of Economics, University Of Venice Cà Foscari)
    Abstract: Income-related inequalities in health care access have been found in several European countries but little is known about the extent of inequalities in the provision of Long Term Care services (LTC). This paper fills this gap: it addresses equity issues related to the provision of home care services across three macro-areas in Europe which are highly heterogeneous in terms of the degree of public financing of LTC and the strength and the social value of family ties. Using cross-country comparative micro-data from SHARE (Survey of Health, Ageing and Retirement in Europe) survey, we estimate and decompose an Erreygers concentration index of the use of both paid domestic help (“unskilled” care) and personal nursing care (“skilled” care), measuring the contribution of income, needs and non-needs factors to overall inequality. We base the decomposition on a bivariate probit model which takes into account the reciprocal interaction between formal and informal home care use. We find evidence of high horizontal inequity in the use of unskilled home care in areas where public financing of LTC is relatively low (Southern Europe) while moderate inequalities emerges in areas where public-private mix of financing is more balanced (Continental Europe). At the same time, we do not detect inequity in Northern Europe characterized by high public spending on universal services equitable for all, including LTC public coverage. In all areas, informal care has been found to be a substitute for paid unskilled care among the poor and this contributes to further skewing the distribution of the use of formal care services towards the rich.
    Keywords: inequality, long term care, home care, Europe
    JEL: I11 I14
    Date: 2015
  10. By: Mariacristina De Nardi; Eric French; John Bailey Jones; Jeremy McCauley
    Abstract: We use data from the Medicare Current Beneficiary Survey (MCBS) to document the medical spending of Americans aged 65 and older. We find that medical expenses more than double between ages 70 and 90 and that they are very concentrated: the top 10% of all spenders are responsible for 52% of medical spending in a given year. In addition, those currently experiencing either very low or very high medical expenses are likely to find themselves in the same position in the future. We also find that the poor consume more medical goods and services than the rich and have a much larger share of their expenses covered by the government. Overall, the government pays for 65% of the elderly's medical expenses. Despite this, the expenses that remain after government transfers are even more concentrated among a small group of people. Thus, government health insurance, while potentially very valuable, is far from complete. Finally, while medical expenses before death can be large, on average they constitute only a small fraction of total spending, both in the aggregate and over the life cycle. Hence, medical expenses before death do not appear to be an important driver of the high and increasing medical spending found in the U.S.
    JEL: D12 D14 I13 I14
    Date: 2015–06
  11. By: Mariacristina De Nardi; Eric French; John B. Jones
    Abstract: The saving patterns of retired U.S. households pose a challenge to the basic life-cycle model of saving. The observed patterns of out-of-pocket medical expenses, which rise quickly with age and income during retirement, and heterogeneous lifespan risk, can explain a significant portion U.S. savings during retirement. However, more work is needed to disentangle these precautionary saving motives from other motives, such as the desire to leave bequests. An important complementary question is why households do not buy more insurance against these risks. Going beyond total savings and looking at its components, including housing, and looking at other portfolio choices can help shed light on these questions.
    JEL: D1 D14 D31 E21 H2 I14
    Date: 2015–06
  12. By: Hideki Konishi (School of Political Science and Economics, Waseda University)
    Abstract: Recently, taxation reforms entailing a “social” valued-added tax (VAT), i.e., a social security reform shifting funding from traditional wage-based taxation to consumption taxation, have been obtaining political support in some developed countries; e.g. Japan, France, Denmark, and Germany. This paper analyzes the political economy of social security funding in an overlapping-generations economy. In particular, we consider how population aging influences the choice of wage or consumption tax financing by focusing on their differential impact on inter- and intragenerational redistribution. Our results show that population aging may drastically alter the political equilibrium, in that if the population growth rate is higher than the interest rate, wage taxation is the only equilibrium choice, but if it is lower, multiple equilibria are likely to emerge, in which the introduction of consumption taxation emerges as an alternative equilibrium choice.
    Keywords: political economy of social security, consumption tax, structure-induced equilibrium
    JEL: D78 H55
    Date: 2014–04
  13. By: David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: The note provides a summary of the possible impact of increases in adult longevity on economic growth with a focus on two particular channels: the contact time effect and the incentive effect. After documenting empirical evidence concerning the rise of longevity, two methods to measure longevity are presented, namely the Gompertz Law and the BCL Law of Mortality. These methods are then applied qualitatively and quantitatively to various models to show the effect of longevity on growth. Overall, the note concludes that increases in longevity are quantitatively significant for the increases in growth observed over the last two centuries and calls for the consideration of demographic factors when examining determinants of growth.
    Date: 2015–06–11
  14. By: Alicja Grze (Wroc)
    Abstract: Information plays a more and more important role in the functioning of a modern society. Various traditional and up-to-date sources of information are available. The purpose of this paper is to evaluate the relations age – patterns of obtaining information by the adult Poles on the base of individual and aggregated data. The respondents are divided into ten-year cohorts. The associations are analyzed against this background by applying some visualization and multivariate statistical methods as the principal components analysis with biplot representation, trellis graphs and composite indicators. Three specific objectives are specified. The first one is to portray the situation in Poland in comparison to other European countries, the second one is to identify the relationships age - the use of the information sources and the third one is to evaluate the potential information gaps occurring between the cohorts.
    Keywords: information sources, ageing, statistical analysis
  15. By: Edle von Gaessler A.K.U.; Ziesemer T.H.W. (UNU-MERIT)
    Abstract: The increasing share of retirees puts pressure on the shrinking working generation which will need to produce more output per worker to ensure a constant standard of living. We investigate the influence a changing dependency ratio has on the time individuals spend in education and production. Longer education will increase productivity in the future, but will lower production in the short run, whereas an increase in labour input at the cost of education will provide more production immediately. We introduce an age-independent dependency ratio into a discrete-time Uzawa-Lucas model with international capital movements, human capital externalities and decreasing returns to labour in education. The dependency ratio is defined as the fraction between inactive and active individuals in regard to work or education. By calibration of the model, we find multiple steady states indicated by a u-shaped relation between education time-shares and the growth rate of the dependency ratio. Near the stable, high-level steady state, the optimal response to higher growth of the dependency ratio is more education to enhance productivity. We find evidence for this relation for 16 OECD countries. As a model extension, a debt-dependent interest rate has been introduced and estimated.
    Keywords: Demographic Trends, Macroeconomic Effects, and Forecasts; Economic Development: Human Resources; Human Development; Income Distribution; Migration;
    JEL: O15 J11
    Date: 2015
  16. By: Andreas Novy
    Date: 2015

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