nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒05‒08
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Effectiveness of early retirement disincentives: Individual welfare, distributional and fiscal implications By Bönke, Timm; Kemptner, Daniel; Lüthen, Holger
  2. Individual heterogeneity and pension choices: How to communicate an effective message? By Giovanni Gallo; Costanza Torricelli; Arthur van Soest
  3. Retirement and Changes in Housework: A Panel Study of Dual Earner Couples By Thomas Leopold; Jan Skopek
  4. The Impact of Fiscal Subsidy on China’s New Rural Pension System: A Natural Experiment By Lin, Benxi; Zhang, Yu Yvette; Lin, Zongjian; Wang, Yongli; Liu, Weiping
  5. The total benefit of alternative assets to pension fund portfolios By Jens Carsten Jackwerth; Anna Slavutskaya
  6. La demande d'aide à domicile est-elle sensible au reste-à-charge : une analyse multi-niveaux sur données françaises By Robin Hege
  7. Mortality Inequality: The Good News from a County-Level Approach By Janet Currie; Hannes Schwandt
  8. On Optimal Retirement (How to Retire Early) By Philip Ernst; Dean Foster; Larry Shepp

  1. By: Bönke, Timm; Kemptner, Daniel; Lüthen, Holger
    Abstract: In aging societies, information on how to reform pension systems is essential to policy makers. This study scrutinizes effects of early retirement disincentives on retirement behavior, individual welfare, pensions and public budget. We employ administrative pension data and a detailed model of the German tax and social security system to estimate a structural dynamic retirement model. We find that labor market participation and retirement behavior in general are strongly influenced by the level of disincentives. Further, disincentives come at the cost of increasing inequality and individual welfare losses. Still, net public returns are more than five times as high as monetarized individual welfare losses. Our estimates also suggest that similar levels of net public returns achieved by indiscriminating pension cuts are associated with individual welfare losses that are at least twice as high.
    Keywords: dynamic discrete choice,retirement,tax and pension system,pension reform
    JEL: C61 H55 J26
    Date: 2016
  2. By: Giovanni Gallo; Costanza Torricelli; Arthur van Soest
    Abstract: We use the Elaboration Likelihood Model (ELM) to explain how communication influences the heterogeneity in pension choices. To this end we exploit the 2007 Italian reform that allowed transferring future severance pay contributions into a pension fund and was accompanied by an information campaign with a clear message. According to ELM, individuals follow either a “central route” or a “peripheral route” depending on their motivation and ability to think, and eventually change or retain their initial attitude. Based on Logit models and data from the Bank of Italy Survey on Household Income and Wealth, we find that the decision to transfer the severance pay into a pension fund was taken by more educated and older individuals, with high household income. Since the reform was mainly directed at low income and younger individuals, this result suggest that the information campaign was not very effective. Moreover, our findings show that generic financial literacy does not significantly affect decision consciousness, pointing at a more relevant role in the elaboration process for: the individual’s comprehension of the specific choice object (pension funds), cognitive skills, and influential contextual factors (i.e., unions and employer’s pressure).
    Keywords: pension choices, Elaboration Likelihood Model, financial literacy
    JEL: D14 D03
    Date: 2016–03
  3. By: Thomas Leopold; Jan Skopek
    Abstract: To examine how transitions to retirement influenced the division of household labor in dual earner couples. We tested hypotheses about changes (a) between a couple’s pre-retirement and post-retirement stage, and (b) across the transitionalphase during which both spouses retired from the workforce. We estimated fixed-effects models for the effects of the husband’s and the wife’s retirement on changes in their hours and share of routine housework. The data came from 29 waves of the German Socio-economic Panel Study, comprising N = 27,784 annual observations of N = 3,071 dual earner couples ages 45 to 75. Spouses who retired first performed more housework, whereas their partners who continued working performed less. This occurred irrespective of the retirement sequence. Husbands who retired first doubled up on their share of housework, but never performed more than 40 percent of a couple’s total hours. None of the observed shifts was permanent. After both spouses had retired, couples reverted to their pre-retirement division of housework. Although the findings on changes after retirement support theories of relative resources, gender construction theories still take precedence in explaining the division of household labor over the life course.
    Date: 2016
  4. By: Lin, Benxi; Zhang, Yu Yvette; Lin, Zongjian; Wang, Yongli; Liu, Weiping
    Abstract: This paper studied the impact of fiscal subsidies on the participation rate and contributions of the rural residents in the China’s New Rural Pension Scheme (NRPS) program using a natural experiment, where the fiscal subsidies includes the incentive pension and the matching subsidy. The results showed that incentive pension can significantly improve the rural residents' participation rates, but participation rate of young residents are less than the older residents. We also showed that matching subsidy does not affect the rural residents' participation rates and contributions significantly. Our results suggest that the current fiscal subsidies play an important role in the establishment and expansion of the NRPS program, but have not increased the participation rate of younger people, which was one of the initial goal of NRPS.
    Keywords: Chinese Pension System, New Rural Pension Scheme (NPRS), Incentive Pension, Matching Subsidy, Participation Rate in Pension System, Pension Contributions, Community/Rural/Urban Development, Consumer/Household Economics,
    Date: 2015–12
  5. By: Jens Carsten Jackwerth (Department of Economics, University of Konstanz, Germany); Anna Slavutskaya (Graduate School of Decision Sciences, University of Konstanz, Germany)
    Abstract: Pension funds only quite recently have explored alternative assets, prodded by financial crises which devastated equity returns and led to low bond returns. We assess the addition of alternative assets to pension fund portfolios in terms of the total benefit derived from diversification, addition of positive skewness, and the elimination of left tails in returns. During 1994‐2012, adding portfolios of hedge funds has produced significantly higher total benefits than adding real estate, commodities, foreign equities, mutual funds, or funds of funds. Conditioning on past total benefits improves the out‐of‐sample performance even further as total benefits are more persistent than alpha.
    Keywords: Hedge Funds, Pension Funds, Performance Measurement, Certainty Equivalent, Alpha
    JEL: G11 G12 G23
    Date: 2015–09–14
  6. By: Robin Hege (Centre d'Economie de la Sorbonne)
    Abstract: This article focuses on the price-elasticity of demand for formal home-care received by disabled elderly. In France a public financing system of long-term care for disabled elderly – aged 60 and over – called APA (Allocation Personnalisée d'Autonomie) has been set up in 2001. This policy is based on a partial subsidization of demand for formal home-care so that an out-of-pocket cost remains. It rests on three variables: the department policy, the provider chosen by the recipient and the income level of the recipient. The induced heterogeneity of the out-of-pocket cost allows price-elasticity estimations but compels me to employ two databases. I use the HSM survey – an individual database on disability and health that is representative of the French population – and the Territoire survey which provides information in each region on the APA policy parameters. The combination of these two databases enables me to approximate the out-of-pocket cost for each individual that is the one-hour formal home-care price. I estimate a multi-level model with random effects and find that the price-elasticity of demand for formal home-care has a value of -0.15 at my average point
    Keywords: Price-elasticity; formal home-care; geographical equity
    JEL: D12 I18 H42 H71
    Date: 2016–03
  7. By: Janet Currie; Hannes Schwandt
    Abstract: Analysts who have concluded that inequality in life expectancy is increasing have generally focused on life expectancy at age 40 to 50. However, we show that among infants, children, and young adults, mortality has been falling more quickly in poorer areas with the result that inequality in mortality has fallen substantially over time. This is an important result given the growing literature showing that good health in childhood predicts better health in adulthood and suggests that today’s children are likely to face considerably less inequality in mortality as they age than current adults. We also show that there have been stunning declines in mortality rates for African-Americans between 1990 and 2010, especially for black men. The fact that inequality in mortality has been moving in opposite directions for the young and the old, as well as for some segments of the African-American and non-African-American populations argues against a single driver of trends in mortality inequality, such as rising income inequality. Rather, there are likely to be multiple specific causes affecting different segments of the population.
    JEL: J11
    Date: 2016–04
  8. By: Philip Ernst; Dean Foster; Larry Shepp
    Abstract: We pose an optimal control problem arising in a perhaps new model for retirement investing. Given a control function $f$ and our current net worth as $X(t)$ for any $t$, we invest an amount $f(X(t))$ in the market. We need a fortune of $M$ "superdollars" to retire and want to retire as early as possible. We model our change in net worth over each infinitesimal time interval by the Ito process $dX(t)= (1+f(X(t))dt+ f(X(t))dW(t)$. We show how to choose the optimal $f=f_0$ and show that the choice of $f_0$ is optimal among all nonanticipative investment strategies, not just among Markovian ones.
    Date: 2016–05

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