nep-age New Economics Papers
on Economics of Ageing
Issue of 2017‒08‒06
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Assessing the Fiscal Sustainability of the Czech Republic By Robert Ambrisko; Vilma Dingova; Michal Dvorak; Dana Hajkova; Eva Hromadkova; Kamila Kulhava; Radka Stikova
  2. "Demographics, Immigration, and Market Size" By Koichi Fukumura; Kohei Nagamachi; Yasuhiro Sato; Kazuhiro Yamamoto
  3. The effects of providing eldercare on daughters’ employment and mental health in Japan By Oshio, Takashi; Usui, Emiko
  4. The Relative Effects of Economic and Non-Economic Factors on Taxpayers’ Preferences Between Front-Loaded and Back-Loaded Retirement Savings Plans By Andrew D. Cuccia; Marcus M. Doxey; Shane R. Stinson
  5. Social Security's Financial Outlook: The 2017 Update in Perspective By Alicia H. Munnell
  6. Child Migration and the Health Status of Parents Left Behind By Fengming CHEN
  7. Empirical Analysis on the Effect of Preventive Care Programs in Japan Evidence from Municipality-level data By Fengming CHEN; Hiroshi YOSHIDA
  8. Sustainable Intergenerational Insurance By Tim Worrall; Alessia Russo; Francesco Lancia
  9. On secular stagnation and low interest rates: demography matters By Ferrero, Giuseppe; Gross, Marco; Neri, Stefano

  1. By: Robert Ambrisko; Vilma Dingova; Michal Dvorak; Dana Hajkova; Eva Hromadkova; Kamila Kulhava; Radka Stikova
    Abstract: We present a model of public finance for the Czech Republic that addresses the main sources of risks to long-term fiscal sustainability: ageing-related expenditures and revenues, and the corresponding evolution of government debt. The baseline model is based on recent demographic projections issued by the Czech Statistical Office that forecast a shrinking share of the working-age population. Along with regulations and microeconomic incentives embedded in the tax and expenditure systems, demographic developments will affect economic growth and government expenditure and revenues in the long run. Population ageing is found to have a significant impact on future government expenditure via spending on old-age pensions and health care, where the cost profiles are modelled to reflect technological progress in the treatment of ageing-related illnesses. The analysis shows that under the current policy settings, a compound demographic effect will cause the primary government balance to turn negative at the beginning of the 2030s. The growing primary deficits, along with interest payments, which react to debt dynamics, will lead to a rapid escalation of government debt. While the outcome of the model is dependent on the specific settings of macroeconomic trends and policy variables, our wide range of sensitivity analyses show that without a policy response, even the most optimistic population scenario delivers an unsustainable path for public finances.
    Keywords: Ageing, debt, demographics, fiscal sustainability, health care expenditure, old-age pension expenditure
    JEL: B12 B52
    Date: 2017–07
  2. By: Koichi Fukumura (JSPS Research Fellow, Osaka University); Kohei Nagamachi (The Graduate School of Management, Kagawa University); Yasuhiro Sato (Faculty of Economics, The University of Tokyo); Kazuhiro Yamamoto (Graduate School of Economics, Osaka University)
    Abstract: This paper constructs an overlapping generations model wherein people decide their number of children and levels of consumption for di¤erentiated goods. We further assume that immigration takes place according to the utility di¤erence between inside and outside a country. We show that an improvement in longevity has three e¤ects on the market size and welfare: First, it decreases the number of children. Second, it increases the per capita expenditure on consumption. Finally, it increases immigration. The …rst e¤ect has negative impacts on the market size and welfare whereas the latter two e¤ects have positive impacts. We then calibrate our model to match Japanese and U.S. data from 1955 to 2014 and …nd that the negative e¤ects dominate the positive ones. Moreover, our counterfactual analyses show that accepting immigration in Japan can be useful in overcoming population and market shrinkage caused by an aging population.
    Date: 2017–07
  3. By: Oshio, Takashi; Usui, Emiko
    Abstract: We examine the association between informal parental care and daughters’ employment and mental health in Japan, using the 2008-2013 waves of the Longitudinal Survey of Middle-aged and Elderly Persons, a large and nationally representative panel survey of middle-aged Japanese people. We find that caregiving reduces the probability of employment by only 2.8 percent, after controlling for time-invariant individual heterogeneity, while caregiving is not associated with either hours or days worked per week for those who are working. We further observe that employment does not increase the psychological distress already experienced by the caregivers as a result of their caregiving role.
    Keywords: informal caregiving, employment, work hours, labor supply, mental health, instrumental variable models, fixed-effects models
    JEL: J22 J14
    Date: 2017–05
  4. By: Andrew D. Cuccia; Marcus M. Doxey; Shane R. Stinson
    Abstract: To understand the potential impact of tax incentives on individual retirement saving, we must understand how individuals make decisions about saving. We examine individual taxpayers’ choices between front-loaded (e.g., traditional) and back-loaded (e.g., Roth) defined contribution retirement savings plans, as well as their saving levels and investment style choices within a plan. To do so, we conduct a series of experiments that allow us to consider individual-specific expectations regarding the economic factors that normatively drive retirement saving decisions, as well as non-economic attitudes and preferences that may also impact these decisions. Overall, we find that participants generally prefer back-loaded retirement plans to front-loaded plans. We find mixed evidence regarding whether individuals appropriately weight expected tax rate changes in their plan choices, despite the fact that these tax rate changes are the primary factor driving the relative after-tax returns of front- and back-loaded plans. Conversely, we find evidence that plan attributes related to individuals’ non-economic attitudes and preferences consistently influence plan choice. Saving levels, while idiosyncratic and difficult to predict, are negatively associated with preference for back-loaded plans and may be influenced by tax-related contextual variables as well. Investment risk is also negatively associated with preferences for back-loaded plans.
    Date: 2017–07
  5. By: Alicia H. Munnell
    Abstract: The 2017 Trustees Report repeats the drumbeat that the Social Security program faces a deficit over the next 75 years and that its Old-Age, Survivors and Disability Insurance (OASDI) trust fund is scheduled for exhaustion in the early 2030s. The size of the deficit and the timing of the exhaustion date changed very little from last year’s report. The 75-year deficit increased slightly from 2.66 percent to 2.83 percent of taxable payrolls, and the exhaustion date remained at 2034. This brief updates the numbers for 2017 and puts the current report in perspective. It also briefly summarizes two very different approaches to restoring balance to the program over the next 75 years, offered by Representatives Sam Johnson and John Larson. In addition, it looks at the implications of early versus later action. Finally, it discusses the continuing absence of replacement rate data from the Trustees Report. The bottom line remains the same. Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, restore confidence in the nation’s major retirement program, and give people time to adjust to needed changes.
    Date: 2017–07
  6. By: Fengming CHEN
    Abstract: I investigate the causal effect of child migration the health status their parents left behind. I mainly focus on the respondents who are more than 50 years old and have only two children to simplify the situations of child migration. Using 2010 wave of China Family Panel Studies (CFPS), I employ propensity score matching method to correct the problem of self-selection and evaluate the causal effect of having migrant children on the health status of the elderly left behind. Results show that, in the case of one child migrating for work, child migration has no impact on the health status of their parents. As the substitutive relationship exists among child siblings, the child staying at home would provide more support to their parents and cancel out the impact of child migration. The incentive of free riding for migrant children is very strong, which reduces the benefit of remittances for the elderly.
    Date: 2017–05
  7. By: Fengming CHEN; Hiroshi YOSHIDA
    Abstract: This study examines the effects of the number of preventive care programs on the number of certified less disabled recipients for long-term care insurance. By constituting a municipality-level two-period panel data, we find that the total number of preventive care programs significantly decreases the number of certified less disabled recipients. When looking at the details of preventive care programs, we find the number of physical activities and dining party activities has a negative effect. And we also examine the combination of preventive care activities and find the effects of physical activities and dining party activities are relatively robust. We conclude that the design of preventive care programs should be considered the characteristics of objects, especially the elderly.
    Date: 2017–05
  8. By: Tim Worrall (University of Edinburgh); Alessia Russo (University of Oslo); Francesco Lancia (University of Vienna)
    Abstract: This paper studies the dynamic and steady state properties of optimal intergenerational insurance when enforcement is limited. It considers a pure exchange and stochastic overlapping generations economy. The optimal allocation is chosen by a benevolent government whose welfare function values the initial old and places a positive, but vanishing weight on the welfare of future generations. The optimal allocation is constrained to be self-enforceable. That is, generations must have no incentive to default on the consumption allocation at any history of states. We show that the optimal intergenerational insurance when enforcement is limited takes the form of a history-dependent pension plan payable by the young to the old generation. In a simple two-state example we show how the degree of insurance depends on the history of states, in particular, insurance falls with more consecutive good states for the young but reverts whenever the bad state occurs. Finally, we solve for the optimal time-dependent and stationary contracts and numerically compare the welfare loss of these schemes relative to the fully optimal history-dependent scheme.
    Date: 2017
  9. By: Ferrero, Giuseppe; Gross, Marco; Neri, Stefano
    Abstract: Nominal and real interest rates in advanced economies have been decreasing since the mid-1980s and reached historical low levels in the aftermath of the global financial crisis. Understanding why interest rates have fallen is essential for both monetary policy and financial stability. This paper focuses on one of the factors that have been put forward in the literature within the secular stagnation view: adverse demographic developments. The main conclusion that we draw from our empirical, panel equation system-based assessment is that these developments have exerted downward pressures on real short- and long-term interest rates in the euro area over the past decade. Moreover, building on the European Commission projections for dependency ratios until 2025, we illustrate that the foreseen structural change in terms of age structure of the population may dampen economic growth and continue exerting downward pressure on real interest rates also in the future. JEL Classification: C32, E52, J11
    Keywords: demographic developments, monetary policy, real interest rates, secular stagnation
    Date: 2017–07

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