nep-age New Economics Papers
on Economics of Ageing
Issue of 2015‒07‒18
ten papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Seniority Wages and the Role of Firms in Retirement By Frimmel, Wolfgang; Horvath, Thomas; Schnalzenberger, Mario; Winter-Ebmer, Rudolf
  2. Invest as You Go: How Public Health Investment Keeps Pension Systems Healthy By Paolo Melindi-Ghidi; Willem Sas
  3. Does Retirement Improve Health and Life Satisfaction? By Aspen Gorry; Devon Gorry; Sita Slavov
  4. On the practical implementation of retirement gains by using an upside and a downside terminal wealth constraint By Catherine Donnelly; Montserrat Guillén; Jens Perch Nielsenz
  5. Drawing Down Our Savings: The Prospects for RRIF Holders Following the 2015 Federal Budget By William B.P. Robson; Alexandre Laurin
  6. Medical spending in the US: facts from the Medical Expenditure Panel Survey Dataset By Pashchenko, Svetlana; Porapakkarm, Ponpoje
  7. Public Education and Pensions in Democracy: A Political Economy Theory By Lancia, Francesco; Russo, Alessia
  8. Do Tax Incentives Increase 401 (K) Retirement Saving? Evidence from the Adotion of Catch-Up Contributions By Matthew S. Rutledge; April Yanyuan Wu; Francis M. Vitagliano
  9. Evaluating pay-as-you-go social security systems By Andreas Bachmann; Kaspar Wüthrich
  10. Disabilità e povertà: il ruolo delle pensioni di invalidità civile. Un'analisi DSGE per i dati italiani By Agovino, Massimiliano; Ferrara, Maria

  1. By: Frimmel, Wolfgang (University of Linz); Horvath, Thomas (WIFO - Austrian Institute of Economic Research); Schnalzenberger, Mario (University of Linz); Winter-Ebmer, Rudolf (University of Linz)
    Abstract: In general, retirement is seen as a pure labor supply phenomenon, but firms can have strong incentives to send expensive older workers into retirement. Based on the seniority wage model developed by Lazear (1979), we discuss steep seniority wage profiles as incentives for firms to dismiss older workers before retirement. Conditional on individual retirement incentives, e.g., social security wealth or health status, the steepness of the wage profile will have different incentives for workers as compared to firms when it comes to the retirement date. Using an instrumental variable approach to account for selection of workers in our firms and for reverse causality, we find that firms with higher labor costs for older workers are associated with lower job exit age.
    Keywords: retirement, seniority wages, firm incentives
    JEL: J14 J26 J31 H55
    Date: 2015–07
  2. By: Paolo Melindi-Ghidi (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Willem Sas (Center for Economic Studies (CES), KU Leuven)
    Abstract: Better health not only boosts longevity in itself, it also postpones the initial onset of disability and chronic infirmity to a later age. In this paper we examine the potential effects of such 'compression of morbidity' on pensions, and introduce a health-dependent dimension to the standard pay-as-you-go (PAYG) pension scheme. Studying the long-term implications of such a system in a simple overlapping generations framework, we find that an increase in public health investment can augment capital accumulation in the long run. Because of this, the combination of health investment with a partially health-dependent PAYG scheme may in fact outperform a purely PAYG system in terms of lifetime welfare.
    Keywords: health investment, disability pension, long-term care, PAYG pension system, OLG model
    JEL: I15 J26 O41
    Date: 2015–07–04
  3. By: Aspen Gorry; Devon Gorry; Sita Slavov
    Abstract: We utilize panel data from the Health and Retirement Study to investigate the impact of retirement on physical and mental health, life satisfaction, and health care utilization. Because poor health can induce retirement, we instrument for retirement using eligibility for Social Security and employer sponsored pensions and coverage by the Social Security earnings test. We find strong evidence that retirement improves both health and life satisfaction. While the impact on life satisfaction occurs within the first 4 years of retirement, many of the improvements in health show up 4 or more years later, consistent with the view that health is a stock that evolves slowly. We find little evidence that retirement influences health care utilization.
    JEL: I10 I31 J26
    Date: 2015–07
  4. By: Catherine Donnelly (Department of Actuarial Mathematics and Statistics, and the Maxwell Institute for Mathematical Sciences, Heriot-Watt University); Montserrat Guillén (Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona); Jens Perch Nielsenz (Cass Business School, City University; Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona)
    Abstract: We analyze an investment strategy for an investor with a savings plan for retirement consisting on constraining the terminal wealth accumulated after the savings period by setting an upper and lower bound. We carry out a simulation of the terminal wealth after a savings period of thirty years by using daily, monthly, weekly and yearly updates. We calculate the percentiles of the final wealth and the corresponding lifetime annuity that the pension saver will receive during the consumption period. We observe how that the simulated values converge to the theoretical values of the percentiles when the frequency of update increases. Finally, in the numerical example the effect of inflaction is also considered.
    Keywords: retirement, pension, smoothing, saving strategies, investment.
    Date: 2015–07
  5. By: William B.P. Robson; Alexandre Laurin
    Keywords: Retirement Income and Saving; Pensions
    JEL: D91 J32
    Date: 2015–07
  6. By: Pashchenko, Svetlana; Porapakkarm, Ponpoje
    Abstract: We document facts about medical spending of the US population using the Medical Expenditure Panel Survey dataset. We find that for the entire population, around 44% of the total medical spending is paid by private insurance but there is a substantial difference in terms of financing medical care by age: for working age adults (25 to 65 years old) private insurance covers around 57% of the total medical spending, whereas for the elderly (older than 65 years old) the largest payor is the government which covers 65% of the total. Inpatient hospital care accounts for a third of the aggregate medical expenditures. Medical spending is highly concentrated: the top 5% of spenders account for more than half of the total expenditure. Even higher concentration is observed among hospital spending where the top 5% of spenders contribute around 80% to the total expenditure. The concentration in medical spending decreases with age: the Gini coefficient of the total medical spending is 0.75 for people aged between 25 and 64 years old and 0.63 for people older than 65 years old. We find that average medical spending of people in the bottom income quintile is higher than that of people in the top income quintile for all age groups. In terms of persistence of medical spending, we find that the correlation of medical expenditure in two consecutive years is 0.36. When persistence is measured by quintile of medical spending distribution, medical spending of people in the bottom and top quintiles has higher persistence relative to other groups.
    Keywords: medical spending, health insurance, health care
    JEL: D12 I13 I14
    Date: 2015–07–15
  7. By: Lancia, Francesco (University of Vienna); Russo, Alessia (Dept. of Economics, University of Oslo)
    Abstract: This paper presents a dynamic politico-economic theory of fiscal policy to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations, since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium can reproduce qualitative and quantitative features of intergenerational fiscal policies in modern economies.
    Keywords: Intergenerational conflict; Markov perfect equilibrium; pension; public education; repeated voting; small open economy
    JEL: D72 E62 H23 H30 H53
    Date: 2015–01–30
  8. By: Matthew S. Rutledge; April Yanyuan Wu; Francis M. Vitagliano
    Abstract: The U.S. government subsidizes retirement saving through 401(k) plans with $61.4 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered.
    JEL: I
    Date: 2015–07–01
  9. By: Andreas Bachmann; Kaspar Wüthrich
    Abstract: This paper proposes a method for the welfare analysis of pay-as-you-go social security systems. We derive a formula for the welfare consequences of a permanent marginal change in the payroll tax rate that is valid under weak assumptions about the deep structure of the economy. Our approach requires neither a full specification of preferences and technology, nor knowledge of the individual savings behavior. Instead of parameterizing and calibrating the deep model structure, we implement our formula based on reduced form estimates of a VAR model. We apply our method to evaluate the social security system in the United States.
    Keywords: social security system; overlapping generations; optimal payroll taxes; welfare analysis; reduced form VAR
    JEL: E62 H55
    Date: 2015–07
  10. By: Agovino, Massimiliano; Ferrara, Maria
    Abstract: The aim of this paper is to investigate the effects of an increase in civilian disability pensions on key macroeconomic variables. In particular, the focus is on consumption of households with at least one disabled member. The analysis is performed simulating a DSGE model using Italian data. The exercise is implemented through a reduction of public spending. Results show that an increase of 0.1% of civilian disability pensions ensures that households with disabled member exit from poverty status and also generates an increase of their consumption. Moreover, we observe a positive indirect effect on consumption of households without disabled member.
    Keywords: Disabilità, Povertà, Politica fiscale
    JEL: E62 I14 J14
    Date: 2015–06–30

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