nep-age New Economics Papers
on Economics of Ageing
Issue of 2015‒06‒27
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Heterogeneous Impact of Pension Income on Elderly Living Arrangements: Evidence from China's New Rural Pension Scheme By Cheng, Lingguo; Liu, Hong; Zhang, Ye; Zhao, Zhong
  2. Did the Intergenerational Solidarity Pact Increase the Employment Rate of Older Workers in Belgium? A Macro-Econometric Evaluation By Dejemeppe, Muriel; Smith, Catherine; Van der Linden, Bruno
  3. Could pension system make us happier? By Shin, Inyong
  4. In the search for the optimal path to establish a funded pension system By Marcin Bielecki; Krzysztof Makarski; Joanna Tyrowicz; Marcin Waniek
  5. Roadblocks on the Road to Grandma’s House: Fertility Consequences of Delayed Retirement By Erich Battistin; Michele De Nadai; Mario Padula
  6. Fertility, Longevity and International Capital Flows By Zsofia Barany; Nicolas Coeurdacier; Stéphane Guibaud
  7. Annuitization and asset allocation By Moshe A. Milevsky; Virginia R. Young
  8. Distributional effects of subsidizing retirement savings accounts: Evidence from Germany By Corneo, Giacomo; Schröder, Carsten; König, Johannes
  9. Illinois Pensions in a Fiscal Context: A (Basket) Case Study By Jeffrey R. Brown; Richard F. Dye
  10. The (W)health of Nations: the Impact of Health Expenditure on the Number of Chronic Diseases By Leonardo Becchetti; Pierluigi Conzo; Francesco Salustri
  11. Managing longevity risk By Li, Hong
  12. Biological Health Risks and Economic Development By Elizabeth Frankenberg; Jessica Y. Ho; Duncan Thomas

  1. By: Cheng, Lingguo (Shanghai University of Finance and Economics); Liu, Hong (Central University of Finance and Economics); Zhang, Ye (Nanjing University); Zhao, Zhong (Renmin University of China)
    Abstract: This paper investigates the impact of pension income on living arrangements of the elderly. Taking advantage of a unique opportunity due to the recent establishment and expansion of the social pension system in rural China, we explicitly address the endogeneity of pension status and income through a fixed-effect model with instrumental variable approach by exploiting exogenous time variation in the program implementation at county level. We find an overall positive effect of pension income on independent living as well as considerable heterogeneity. The elderly with easy access to their adult children, possessing higher financial capacity, in less long-term care and psychological need, and having more education are more likely to live independently after receiving pension income. Our results confirm that independent living is a normal good, but highlight that living arrangement is multidimensional in rural China.
    Keywords: pension income, living arrangements, heterogeneity, China
    JEL: J12 H55 I38
    Date: 2015–06
  2. By: Dejemeppe, Muriel (Université catholique de Louvain); Smith, Catherine (Catholic University Louvain); Van der Linden, Bruno (IRES, Université catholique de Louvain)
    Abstract: In December 2005, the Belgian government adopted the law on the Intergenerational Solidarity Pact (ISP) aiming at increasing the employment rate of older workers. The main policies of the ISP consist in a pension bonus, reductions in employers' social security contributions and measures discouraging early retirement while encouraging working time reductions at the end of the career. We aim at evaluating the overall effectiveness of the ISP in rising the employment rate of older workers. To that purpose, we compare the actual evolution of the employment rate after the implementation of the policies to its predicted (counterfactual) evolution based on the estimation of a macroeconometric model in a period prior to the ISP. The results suggest a slight positive impact of the ISP on the employment rate of older workers but to the detriment of the younger workers. However, there is a lack of statistical power to draw firm conclusions on the overall effect of the ISP.
    Keywords: aging, evaluation of labor market policies, macro-econometrics
    JEL: J21 J26 H53 E32
    Date: 2015–06
  3. By: Shin, Inyong
    Abstract: We have analyzed the effect of a pension system on life expectancy and happiness level using a cross country data and an optimal dynamic problem of individuals who live in continuous and finite time. From the data and the optimization problem, we have found the following; 1) happiness can be almost explained by income per capita, 2) depending on the level of income per capita, the pension system can make lifespan longer or shorter and can raise or reduce the level of happiness, 3) the extension of lifespan without the income support may not always make our happiness higher, 4) under government budget constraint, even though pension system can make the lifespan longer, pension system cannot make the happiness level higher and can rather raise problems for aging population. The public pension system, which is a compulsory saving, can crowd out the private savings and can prevent individual's utility maximization. This paper suggests that it is not always true that the pension system improves happiness level and that it may be necessary for us to reconsider about the reason for existence of the compulsory pension.
    Keywords: pension system, optimized life expectancy, lifetime utility level, health investments
    JEL: C61 H55 I31
    Date: 2015–06–18
  4. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Marcin Waniek (University of Warsaw)
    Abstract: We propose a politically feasible instrument for a nearly optimal transition from a pay-as-you-go to a funded scheme in a defined contribution pension system. It consists of compensating the transition generations in the form of pension benefits indexation more generous than would have prevailed in a clean DC system. Thus, this instrument allows to smoothen the welfare costs of transition over future generations via some small implicit debt. Our instrument proves robust to a number of parametric and modeling choices.
    Keywords: defined contribution, pay-as-you-go, pre-funded, pension system
    JEL: H55 E17 C60
    Date: 2015
  5. By: Erich Battistin (Queen Mary University of London, IRVAPP and IZA); Michele De Nadai (University of New South Wales); Mario Padula (Università della Svizzera italiana, IdEP, CSEF and CEPR)
    Abstract: We investigate the role of grandparental childcare for fertility decisions of their offspring. Exploiting pension reforms in Italy, we argue that delayed retirement represents a negative shock to the supply of informal childcare for the next generation. We show that, when the maternal grandmother is not available, motherhood after age 30 is less likely. This effect persists as the woman ages, and parallels that on number of children. We argue that these are permanent changes to completed fertility for many cohorts in our data. Consistent with our interpretation, we show that results are limited to the most familistic close-knits where the role of grandparents is more important, and that are not the mechanical consequence of changes of living arrangements and labor supply. Given the Italian lowest low fertility, we conclude that pension reforms may have had unintended inter-generational effects.
    Keywords: Fertility, Informal child care, Pension reforms
    JEL: J08 J13 H42
    Date: 2015–06
  6. By: Zsofia Barany (Département d'économie); Nicolas Coeurdacier (Département d'économie); Stéphane Guibaud (Département d'économie)
    Abstract: The neoclassical growth model predicts large capital flows towards fast-growing emerging countries. We show that incorporating fertility and longevity into a lifecycle model of savings changes the standard predictions when countries differ in their ability to borrow inter-temporally and across generations through social security. In this environment, global aging triggers capital flows from emerging to developed countries, and countries’ current account positions respond to growth adjusted by current and expected demographic composition. Data on international capital flows are broadly supportive of the theory. The fact that fast-growing emerging countries are also aging faster, while having less developed credit markets and pension systems, explains why they are more likely to export capital. Our quantitative multi-country overlapping generations model explains a significant fraction of the patterns of capital flows, across time and across developed and emerging countries.
    Date: 2015–06
  7. By: Moshe A. Milevsky; Virginia R. Young
    Abstract: This paper examines the optimal annuitization, investment and consumption strategies of a utility-maximizing retiree facing a stochastic time of death under a variety of institutional restrictions. We focus on the impact of aging on the optimal purchase of life annuities which form the basis of most Defined Benefit pension plans. Due to adverse selection, acquiring a lifetime payout annuity is an irreversible transaction that creates an incentive to delay. Under the institutional all-or-nothing arrangement where annuitization must take place at one distinct point in time (i.e. retirement), we derive the optimal age at which to annuitize and develop a metric to capture the loss from annuitizing prematurely. In contrast, under an open-market structure where individuals can annuitize any fraction of their wealth at anytime, we locate a general optimal annuity purchasing policy. In this case, we find that an individual will initially annuitize a lump sum and then buy annuities to keep wealth to one side of a separating ray in wealth-annuity space. We believe our paper is the first to integrate life annuity products into the portfolio choice literature while taking into account realistic institutional restrictions which are unique to the market for mortality-contingent claims.
    Date: 2015–06
  8. By: Corneo, Giacomo; Schröder, Carsten; König, Johannes
    Abstract: We empirically investigate the distributional consequences of the Riester scheme, the main private pension subsidization program in Germany. We find that 38% of the aggregate subsidy accrues to the top two deciles of the population, but only 7.3% to the bottom two. Nonetheless the Riester scheme is almost distributionally neutral when looking at standard inequality measures. This is due to two offsetting effects: a progressive one stemming from the subsidy schedule and a regressive one from voluntary participation. Regressions of the participation decision suggest that a high level of household wealth significantly increases the probability of benefiting from the Riester scheme.
    Keywords: saving subsidies,retirement plans,income distribution
    JEL: D31 H55 J32 D14 I38
    Date: 2015
  9. By: Jeffrey R. Brown; Richard F. Dye
    Abstract: Illinois’ public pensions are among the worst funded in the nation. We present evidence that the main reason for Illinois' underfunding is a history of making inadequate contributions, dating back to the origins of the state's pensions. We discuss the recent history and legal status of pension reform efforts in the state. Using a fiscal model of the state's finances, we project how Illinois' fiscal situation may evolve in the future. A key finding is that with or without pension reform, Illinois will continue to face significant structural deficits that will require revenue increases and/or additional spending cuts to address.
    JEL: H20 H71 H75
    Date: 2015–06
  10. By: Leonardo Becchetti (Università di Roma "Tor Vergata"); Pierluigi Conzo (Università di Torino and CSEF); Francesco Salustri (Università di Roma "Tor Vergata")
    Abstract: We investigate the impact of health expenditure on health outcomes on a large sample of Europeans aged above 50 using individual and regional-level data. We find a significant and negative effect of lagged health expenditure on later changes in the number of chronic diseases. This effect varies according to age, health behavior, gender, income and education, thereby supporting the hypothesis that the impact of health expenditure across different interest groups is heterogeneous. Our empirical findings are confirmed also when health expenditure is instrumented with parliament political composition.
    Keywords: health satisfaction, education, life satisfaction, public health costs
    JEL: I12 I11 I18
    Date: 2015–06–23
  11. By: Li, Hong (Tilburg University, School of Economics and Management)
    Abstract: The thesis first examines the choice of sample size for mortality forecasting, and then deal with the hedging of longevity risk using longevity-linked instruments. Chapter 2 proposes a Bayesian learning approach to determine the (posterior distribution of) the sample sizes for mortality forecasting using mortality models based on linear extrapolation approaches. Chapter 3 studies the static robust management of longevity risk in the situation that the hedger does not have precise knowledge of the underlying probability distribution of the future mortality rates. Mean-variance and mean-conditional-value-at-risk objective functions are used. Chapter 4 focuses on the dynamic hedging of longevity risk in the case where the trading frequency of the longevity-linked derivatives is limited. A minimum-variance objective function is used, and time-consistent hedging strategies are derived in both the benchmark case, where all assets can be traded continuously, and a constrained case, where the longevity-linked derivatives can only be traded at a low and deterministic frequency.
    Date: 2015
  12. By: Elizabeth Frankenberg; Jessica Y. Ho; Duncan Thomas
    Abstract: With populations aging and the epidemic of obesity spreading across the globe, global health risks are shifting toward non-communicable diseases. Innovative biomarker data from recently conducted population-representative surveys in lower, middle and higher income countries are used to describe how four key biological health risks – hypertension, cholesterol, glucose and inflammation – vary with economic development and, within each country, with age, gender and education. As obesity rises in lower income countries, the burden of non-communicable diseases will rise in roughly predictable ways and the costs to society are potentially very large. Investigations that explain cross-country differences in these relationships will have a major impact on advancing understanding of the complex interplay between biology, health and development.
    JEL: I15 O10
    Date: 2015–06

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