nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒09‒18
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Aging, (Pension) Reforms and the Shadow Economy in Southern Europe By Daniel Baksa; Zsuzsa Munkacsi
  2. When Do We Start? Pension reform in aging Japan By KITAO Sagiri
  3. Pensions, annuities, and long-term care insurance: On the impact of risk screening By Martin Boyer; Franca Glenzer
  4. A Detailed Description of OGRE, the OLG Model By Daniel Baksa; Zsuzsa Munkacsi
  5. Older Women’s Labor Market Attachment, Retirement Planning, and Household Debt By Annamaria Lusardi; Olivia S. Mitchell
  6. Demographics and Real Interest Rates: Inspecting the Mechanism By Fernanda Nechio; Andrea Ferrero; Carlos Carvalho
  7. Can Financial Literacy Reduce Anxiety about Life in Old Age? By KADOYA Yoshihiko; Mostafa Saidur Rahim KHAN
  8. L'aide à un parent âgé, seul et dépendant : déterminants structurels et interactions By Quitterie Roquebert; Roméo Fontaine; Agnès Gramain
  9. The Welfare Cost of Retirement Uncertainty By Frank N. Caliendo; Maria Casanova; Aspen Gorry; Sita Slavov
  10. Can We Increase Retirement Saving? By Steven A. Sass
  11. The Funded Pension Scheme and Economic Growth in Nigeria By FARAYIBI, Adesoji
  12. Pension Saving Responses to Anticipated Tax Changes: Evidence from Monthly Pension Contribution Records By Claus Thustrup Kreiner; Søren Leth-Petersen; Peer Ebbesen Skov
  13. Analyse de la rentabilité économique des scénarios de réforme du RRQ proposés en 2016 By David Boisclair; Simon Brière; Guy Lacroix; Steeve Marchand; Pierre-Carl Michaud
  14. Population aging and the transmission of monetary policy to consumption By Arlene Wong
  15. The Intra-Family Division of Bequests and Bequest Motives: Empirical Evidence from a Survey on Japanese Households By HAMAAKI Junya; HORI Masahiro; MURATA Keiko
  16. Women Working Longer: Facts and Some Explanations By Claudia Goldin; Lawrence F. Katz

  1. By: Daniel Baksa (Central European University); Zsuzsa Munkacsi (Bank of Lithuania)
    Abstract: Southern Europe is currently experiencing a double-whammy: high levels of government debt coupled with a rapidly aging population. Thus, the consolidation of (pension) budgets seems inevitable. In this paper we examine the short- and long-run macroeconomic e ects of public old-age pension reforms and other scal policies under conditions of population aging. To do so, we calibrate OGRE, a New Keynesian model with overlapping generations, unemployment and an underground sector to match annual data on Portugal and Spain. Our main nding is that a retirement-age increase is the least harmful policy with respect to long-run output. However, we raise some doubts about the feasibility of implementing this policy.
    Keywords: population aging, public old-age pension reforms, pay-as-you-go, fully funded, shadow economy, informal employment, government debt, New Keynesian model, overlapping generations, demography, unemployment, retirement ageLength: 71 pages
    JEL: E24 E26 H55 J11 J46
    Date: 2016–08–23
  2. By: KITAO Sagiri
    Abstract: Japan is going through rapid and significant demographic aging. Fertility rates have been below replacement level for four decades, and life expectancy has increased by 30 years since the 1950s. The pension reform of 2004 is expected to reduce the replacement rate, but there is much uncertainty as to when and whether the adjustment will be complete. The normal retirement age of 65 will be the lowest among major developed countries. This paper simulates pension reform to reduce the replacement rate by 20% and raise the retirement age by three years gradually over a 30-year period. We consider three scenarios that differ in timing to initiate reform and let the consolidation start in 2020, 2030, and 2040, respectively. A delay would suppress economic activities, lowering output by up to 4% and raising the tax burden by more than eight percentage points of total consumption. Delaying reform also implies a major tradeoff across generations and deteriorates the welfare of future generations by up to 3% in consumption equivalence.
    Date: 2016–07
  3. By: Martin Boyer; Franca Glenzer
    Abstract: We examine the interaction between the choice of a retirement vehicle and the purchase of long-term care insurance in a world where agents learn about their longevity and long-term care risk over time. In our setting, and absent any long-term care issues, acquiring a retirement product before learning one’s risk type would be preferred by risk averse agents. When we introduce the possibility of needing longterm care, some agents will prefer to wait until they know their health status (i.e., their risk type) before purchasing a retirement product (a situation akin to having a defined contribution pension plan), whereas others will opt to purchase their retirement product before learning their health status (a situation akin to having a defined benefit pension plan). The preference of one retirement vehicle over the other depends, inter alia, on the level of information asymmetry on the market, on an agent’s risk aversion, and on the probability of needing long-term care and its potential cost. When agents purchase their retirement vehicle after (resp. before) knowing their their health status, then agents will choose a contract that provides them with (resp. less than) full long-term care insurance coverage.
    Keywords: Asymmetric information, Information acquisition, Adverse Selection, Longevity risk, Screening, Pooling Equilibrium
    JEL: D82 G22 H55
    Date: 2016
  4. By: Daniel Baksa (Central European University); Zsuzsa Munkacsi (Bank of Lithuania)
    Abstract: In this paper we present the structure of OGRE, a dynamic general equilib-rium model with overlapping generations, unemployment and a shadow economy. Based on a parametrized version of the model, we examine the impacts of aging and calculate multipliers of public pension and other fiscal policies. Also, we contrast macroeconomic reactions with pay-as-you-go and fully funded pension plans. Lastly, we highlight the role of unemployment and that of the underground sector in the framework.
    Keywords: population aging, public old-age pension reforms, pay-as-you-go, fully funded, shadow economy, informal employment, government debt, New Keynesian model, overlapping generations, demography, unemployment, retirement age
    JEL: E24 E26 H55 J11 J46
    Date: 2016–08–23
  5. By: Annamaria Lusardi; Olivia S. Mitchell
    Abstract: The goal of this paper is to ascertain whether older women’s current and anticipated future labor force patterns have changed over time, and if so, to evaluate the factors associated with longer work lives and plans to continue work at older ages. Using data from both the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS), we show that older women’s current and intended future labor force attachment patterns are changing over time. Specifically, compared to our 1992 HRS baseline, more recent cohorts of women in their 50’s and 60s’s are more likely to plan to work longer. When we explore the reasons for delayed retirement among older women, factors include education, more marital disruption, and fewer children than prior cohorts. But household finances also play a key role, in that older women today have more debt than previously and are more financially fragile than in the past. The NFCS data show that factors associated with retirement planning include having more education and greater financial literacy. Those who report excessive amounts of debt and are financially fragile are the least financially literate, had more dependent children, and experienced income shocks. Thus shocks do play a role in older women’s debt status, but it is not enough to have resources: people also need the capacity to manage those resources if they are to stay out of debt as they head into retirement.
    JEL: D91 J14
    Date: 2016–09
  6. By: Fernanda Nechio (Federal Reserve Bank of San Francisco); Andrea Ferrero (University of Oxford); Carlos Carvalho (PUC-Rio)
    Abstract: The demographic transition can affect the equilibrium real interest rate through three channels. An increase in longevity---or expectations thereof---puts downward pressure on the real interest rate, as agents build up their savings in anticipation of a longer retirement period. A reduction in the population growth rate has two counteracting effects. On the one hand, capital per-worker rises, thus inducing lower real interest rates through a reduction in the marginal product of capital. On the other hand, the decline in population growth eventually leads to a higher dependency ratio (the fraction of retirees to workers). Because retirees save less than workers, this compositional effect lowers the aggregate savings rate and pushes real rates up. We calibrate a tractable life-cycle model to capture salient features of the demographic transition in developed economies, and find that its overall effect is a reduction of the equilibrium interest rate by at least one and a half percentage points between 1990 and 2014. Demographic trends have important implications for the conduct of monetary policy, especially in light of the zero lower bound on nominal interest rates. Other policies can offset the negative effects of the demographic transition on real rates with different degrees of success.
    Date: 2016
  7. By: KADOYA Yoshihiko; Mostafa Saidur Rahim KHAN
    Abstract: This study examines whether financial literacy can reduce anxiety about life in old age. We hypothesize that financially literate people are better equipped to make saving decisions, plan for the future, and handle uncertainty, reducing their anxiety about life in old age. The study uses data from a nationwide survey in Japan and probit regression analysis to provide evidence that financial literacy can reduce anxiety about life in old age. The regression coefficients show that financial literacy has a significantly negative impact on the level of anxiety, a relationship that holds after controlling for age, gender, education, marital status, assets, expected social security coverage, house ownership, living with children, and exercise. The results are robust after using different methods to measure financial literacy, and have implications for policies related to aging and risk management. Since financial literacy helps people to reduce risks and uncertainties effectively, policymakers should consider emphasizing financial literacy education early in life to lower anxieties about life in old age.
    Date: 2016–07
  8. By: Quitterie Roquebert (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Roméo Fontaine (LEDi - Laboratoire d'Economie de Dijon - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique); Agnès Gramain (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: With population ageing, the demand for home care of the disabled elderly is increasing and a large part of care is provided by informal caregivers. This paper focuses on the determinants of care provision by children to an old, single and disabled parent. We focus on two-child families and apply a semi-structural methodology, already implemented on European data (survey SHARE). It makes it possible to distinguish between two types of determinants: structural determinants (individual, parental and family characteristics) and interactions (effect of the care provision of one child on the care provision of the other). The estimation of this model on data of the French survey "Handicap Santé Ménages" (2008) highlights two distinct behaviors according to sibling rank. Indeed, if the care decisions of both children are sensitive to the characteristics of their parent, the older child reacts more on the sibling composition, whereas the younger child's decision is much more influenced by her personal characteristics. Interactions are found to be asymmetric: when the sibling provides care, the elder is more likely to be caregiver, whereas it is the reverse for the younger child. These differences are interpreted as follows: in two-child families, the older child provides care as a response of a socially-assigned role, whereas the younger child decides through a trade-off between the advantages and the opportunity costs of care provision.
    Abstract: Cet article étudie les déterminants des décisions d'aide de la part des membres d'une fratrie de deux enfants à l'égard d'un parent âgé, seul et dépendant. L'application d'une méthodologie semi-structurelle, déjà utilisée sur données européennes (enquête SHARE), permet de distinguer les déterminants structurels (individuels et familiaux) et les interactions (influence de la décision d'un membre de la fratrie sur la décision de l'autre). Les résultats obtenus sur les données françaises de l'enquête Handicap-Santé de 2008 confirment l'importance du rang dans la fratrie pour comprendre les comportements d'aide. En effet, deux logiques de comportements distinctes apparaissent, aussi bien dans les déterminants structurels que dans les interactions. D'une part, si l'aide des enfants est influencée par les caractéristiques du parent quelque soit leur rang, les aînés semblent par ailleurs réagir principalement à la composition de la fratrie, tandis que les cadets adaptent leurs comportements à leurs contraintes personnelles. D'autre part, l'implication de l'autre membre de la fratrie augmente l'utilité d'être aidant pour les aînés, alors qu'elle la diminue pour les cadets. L'aide des aînés se comprendrait alors comme l'acceptation d'une assignation sociale, tandis que celle des cadets répondrait à une logique d'arbitrage, fondée sur la comparaison des coûts et des avantages associés à l'aide.
    Keywords: long-terme care,informal care,social interactions,aide informelle,interactions sociales,personnes âgées dépendantes
    Date: 2016–04
  9. By: Frank N. Caliendo; Maria Casanova; Aspen Gorry; Sita Slavov
    Abstract: Uncertainty about the timing of retirement is a major financial risk with implications for decision making and welfare over the life cycle. Our conservative estimates of the standard deviation of the difference between retirement expectations and actual retirement dates range from 4.28 to 6.92 years. This uncertainty implies large fluctuations in total wage income. We find that individuals would give up 2.6%-5.7% of total lifetime consumption to fully insure this risk and 1.9%-4.0% of lifetime consumption simply to know their actual retirement date at age 23. Uncertainty about the date of retirement helps to explain consumption spending near retirement and precautionary saving behavior. While social insurance programs could be designed to hedge this risk, current programs in the U.S. (OASI and SSDI) provide very little timing insurance.
    JEL: C61 E21 H55 J26
    Date: 2016–09
  10. By: Steven A. Sass
    Abstract: Workers today must save to gain a secure retire­ment. Failing to save assures a sharp drop in living standards when the paychecks stop, and ample evi­dence indicates that many Americans are not saving enough. This brief reviews studies by the Social Security Administration’s Retirement Research Consortium, and others, that assess government initiatives to in­crease retirement saving. The first section introduces the government’s traditional incentive – favorable tax treatment for employer plans and Individual Retire­ment Accounts (IRAs). The second section presents evidence on its effect. The third section reviews evi­dence on the effect of behavioral incentives, such as auto-enrollment, which the government encourages employers to use in their 401(k)s. The fourth section discusses state government initiatives, now under de­velopment, to expand access to workplace plans. The final section concludes that the most promising cur­rent initiative to increase retirement saving could be the state government programs to auto-enroll workers not covered by an employer plan into an IRA.
    Date: 2016–09
  11. By: FARAYIBI, Adesoji
    Abstract: This study provided evidence on the effect of the operation of the funded pension scheme since its inception in 2004 on economic growth in Nigeria using error correction mechanism (ECM) and Ordinary Least Square (OLS) methodologies. Findings revealed that the pension fund contributions from both private and public sectors in Nigeria increased greatly and constituted a huge investment fund in the capital and money markets. This increased liquidity in the economy and created employment opportunities as well as improvement in the investment climate. The study concluded that with good risk and portfolio management by pension fund administrators and custodians, the contributory pension has the capacity to boost the Gross Domestic Product (GDP) in Nigeria and very convenient to retirees compared to the previous defined benefit scheme. The study however recommended the removal of delay payment, administrative bottlenecks and corruption in the management of the pension fund in order to boost economic growth in Nigeria.
    Keywords: Funded Pension Scheme, Economic growth, Portfolio management, ECM, Nigeria
    JEL: H0 H30 H5 H55
    Date: 2016–09–07
  12. By: Claus Thustrup Kreiner (Department of Economics, University of Copenhagen); Søren Leth-Petersen (Department of Economics, University of Copenhagen); Peer Ebbesen Skov (Auckland University of Technology)
    Abstract: A Danish tax reform, decided in May 2009 and taking effect from the beginning of 2010, lowered the marginal tax rate on top bracket taxable income from 63% to 56%. Because contributions to pension accounts are tax deductible, the reform provided an incentive to increase pension contributions before the change in taxation. Using high frequency panel data, we document an increase in pension contributions in the second half of 2009 in response to the anticipated change in taxation, and that this led to an increase in total savings.
    Date: 2016–09–09
  13. By: David Boisclair; Simon Brière; Guy Lacroix; Steeve Marchand; Pierre-Carl Michaud
    Abstract: Nous utilisons des méthodes de simulation et un simulateur fiscal détaillé pour analyser les effets des plus récentes propositions de réforme du Régime de rentes du Québec (RRQ). Les deux propositions analysées sont celles mises de l’avant en juin 2016 par le gouvernement du Canada, et qui a reçu l’appui d’une majorité de provinces ; et par le gouvernement du Québec, ce dernier n’ayant à ce jour pas appuyé la proposition soumise par le fédéral. Nous analysons les effets en termes de taux de rendement interne (TRI), pour 78 types d’individus ; nous prenons en considération l’inégalité d’espérance de vie selon le niveau de scolarité, la variabilité des revenus de travail au fil de la carrière et les interactions avec la fiscalité et le système de revenu à la retraite au Québec – tels qu’ils existent et selon les modifications proposées. Nos résultats indiquent que les TRI des nouvelles cotisations sont comparables au taux de rendement d’autres produits financiers et qu’ils sont similaires, sous les deux réformes proposées, pour les individus gagnant plus de 25 000$ en moyenne (en $ de 2015), mais que la proposition du gouvernement fédéral génère des taux de remplacement du revenu plus élevés et est plus attrayante – en termes de TRI – pour les individus gagnant un revenu moyen de travail se situant au bas de la distribution. Cette dernière différence avec la proposition québécoise est due à la bonification proposée par le fédéral de sa prestation fiscale pour revenu de travail, qui vient contrer l’effet de la hausse des cotisations au RRQ.
    Keywords: épargne retraite, Québec, réforme, inégalité, faible revenu
    JEL: J18 J26 J32
    Date: 2016
  14. By: Arlene Wong (Northwestern University)
    Abstract: Previous work has documented that housing and refinancing decisions play an important role in shaping the aggregate and cross-sectional consumption elasticities to interest rate shocks. New home purchases and refinances can then affect durable and non-durable consumption through the associated fluctuations in disposable income and the complementarity between housing and consumption. In this paper, we examine the transmission of monetary policy through housing debt. Specifically, we use detailed micro data to study the mortgage channel that links monetary policy with household borrowing and consumption expenditure. Specifically, we quantify the heterogeneity across borrowers and state-dependency in the pass-through of interest rate shocks to consumption over the Federal Reserve Bank’s interest rate cycle.
    Date: 2016
  15. By: HAMAAKI Junya; HORI Masahiro; MURATA Keiko
    Abstract: The division of bequests among family members differs sharply between Japan and the United States. Whereas in the United States, bequests tend to be divided equally among decedents’ children, they tend to be divided unequally in Japan. This paper first tries to answer why this is this case. We start by arguing that certain legal and institutional aspects that lead to equal bequests in the United States are not present in Japan. We then investigate patterns of bequest division in Japan to understand parental bequest motives. In particular, we compare the division of bequests in primary and secondary inheritances to examine parental motives and the role of traditional family values in Japan. While in the case of both “primary” and “secondary” inheritances (referring to inheritances where the first parent has died and inheritances in which the second parent has died, respectively) the patterns of bequest division in Japan look generally consistent with a variety of parental bequest motives proposed in the literature, the role of these motives, especially of the dynastic and strategic motives, is more prominent in primary inheritances, in which the surviving spouse has the opportunity to express his/her intentions. However, Japanese parents, contrary to predictions of the altruism model, appear not to bequeath more to economically disadvantaged children.
    Date: 2016–09
  16. By: Claudia Goldin; Lawrence F. Katz
    Abstract: American women are working more, through their sixties and even into their seventies. Their increased participation at older ages started in the late 1980s before the turnaround in older men’s labor force participation and the economic downturns of the 2000s. The higher labor force participation of older women consists disproportionately of those working at full-time jobs. Increased labor force participation of women in their older ages is part of the general increase in cohort labor force participation. Cohort effects, in turn, are mainly a function of educational advances and greater prior work experience. But labor force participation rates of the most recent cohorts in their forties are less than those for previous cohorts. It would appear that employment at older ages could stagnate or even decrease. But several other factors will be operating in an opposing direction leading us to conclude that women are likely to continue to work even longer.
    JEL: J21 J22 J26
    Date: 2016–09

This nep-age issue is ©2016 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.