|
on Economics of Ageing |
| By: | Sigurd Mølster Galaasen (Norges Bank (Central Bank of Norway)) |
| Abstract: | Old-age pension reform is on the agenda across the OECD, and a key target is to delay retirement. Most of these countries also have a disability insurance (DI) program accounting for a large share of labor force exits. This paper builds a quantitative life-cycle model with endogenous retirement to study how DI and old-age pension (OA-pension) systems interact with health and wages to determine retirement age, with particular focus on the macroeconomic effects of OA-pension reforms. Individuals face uncertain future health status and wages, and if in bad health they are eligible for DI if they choose to retire before reaching the statutory retirement age. I calibrate the model to the Norwegian economy and explore the effects of raising the statutory retirement age and cutting OA-pension on labor supply and public finances. The main contribution of the paper is that I, in contrast to standard macro pension models, include DI as another endogenous margin of retirement. I show that failure to account for this margin might severely bias the analysis of OA-pension reforms. |
| Keywords: | Retirement, disability insurance, life-cycle, pension reform |
| JEL: | E2 E6 H31 H55 J26 |
| Date: | 2017–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2017_20&r=age |
| By: | Torben M. Andersen; Joydeep Bhattacharya |
| Abstract: | Many countries, in an effort to address the problem that too many retirees have too little saved up, impose mandatory contributions into retirement accounts, that too, in an age-independent manner. This is puzzling because such funded pension schemes effectively mandate the young, who wish to borrow, to save for retirement. Further, if agents are present-biased, they disagree with the intent of such schemes and attempt to undo them by reducing their own saving or even borrowing against retirement wealth. We establish a welfare case for mandating the middle-aged and the young to contribute to their retirement accounts, even with age-independent contribution rates. We find, somewhat counterintuitively, that even though the young responds by borrowing more that too at a rate higher than offered by pension savings, their life-time utility increases. |
| Keywords: | present-biased preferences, mandatory pensions, pension offsets, crowding out |
| JEL: | H55 D91 D03 E60 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6577&r=age |
| By: | Peter Haan; Daniel Kemptner; Holger Lüthen |
| Abstract: | This study uses German social security records to provide novel evidence about the heterogeneity in life expectancy by lifetime earnings and, additionally, documents the distributional implications of this earnings-related heterogeneity. We find a strong association between lifetime earnings and life expectancy at age 65 and show that the longevity gap is increasing across cohorts. For West German men born 1926-28, the longevity gap between top and bottom decile amounts to about 4 years (about 30%). This gap increases to 7 years (almost 50%) for cohorts 1947-49. We extend our analysis to the household context and show that lifetime earnings are also related to the life expectancy of the spouse. The heterogeneity in life expectancy has sizable and relevant distributional consequences for the pension system: when accounting for heterogeneous life expectancy, we find that the German pension system is regressive despite a strong contributory link. We show that the internal rate of return of the pension system increases with lifetime earnings. Finally, we document an increase of the regressive structure across cohorts, which is consistent with the increasing longevity gap. |
| Keywords: | mortality, lifetime inequality, pensions, redistribution |
| JEL: | H55 I14 J11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1698&r=age |
| By: | David Ingles and Miranda Stewart |
| Abstract: | Australia's retirement income system combines private and public provision for old age. Retirees rely on private (but highly regulated) superannuation saving that attracts large tax concessions; a public, means-tested age pension; home ownership; and other private savings. Despite recent changes intended to make the system fairer and more fiscally sustainable, Australia's retirement income system still lacks coherence, produces inequitable outcomes and creates high effective tax rates on work and saving. This article proposes a more coherent approach to address fairness, reduce the effective tax rates on work and saving and provide adequate earnings replacement rates with greater fiscal sustainability than is delivered in the recent reforms. |
| Keywords: | age pension, income tax, retirement saving, superannuation, work incentives |
| Date: | 2017–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:appswp:201731&r=age |
| By: | Jean-Pierre Aubry; Caroline V. Crawford; Alicia H. Munnell |
| Abstract: | While most municipal analysts view pensions as a minor risk to the municipal debt markets, many state and local government officials express concern that poor pension finances greatly threaten their government’s ability to borrow at affordable rates. Prior analysis by the Center supports the municipal analysts’ view, finding that pension finances had only a slight impact on state borrowing costs over the 2005 to 2009 period. Since the financial crisis, however, rating agencies have begun to explicitly account for pensions in their methodologies; New Jersey, Illinois, and the City of Dallas were downgraded, in part, due to their pension challenges. On the flip side, just last month, Fitch Ratings revised their outlook for the City of Dallas from “negative” to “stable” based on the City’s recently adopted benefit reforms. Given these recent developments, this brief revisits the earlier analysis to see if state and local borrowing costs have become more sensitive to pensions since the financial crisis. The brief also expands the scope of the analysis in two important ways. First, it includes local governments, whose borrowing costs may be more sensitive due to their smaller and less flexible tax bases. Second, it investigates whether the flurry of reforms made in the wake of the financial crisis have had any impact on borrowing costs. The discussion proceeds as follows. The first section describes the municipal bond market generally and examines how it has evolved from the turn of the century to today. The second section discusses the current public pension challenge in relation to government finances and the municipal bond markets. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ibslp57&r=age |
| By: | Reyer Gerlagh; Richard Jaimes; Ali Motavasseli |
| Abstract: | Between 1950 and 2017, world average life expectancy increased from below-50 to above-70, while the fertility rate dropped from 5 to about 2.5. We develop and calibrate an analytic climate-economy model with overlapping generations to study the effect of such demographic change on capital markets and optimal climate policies. Our model replicates findings from the OLG-demography literature, such as a rise in households’ savings, and a declining rate of return to capital. We also find that demographic change raises the social cost of carbon, at 2020, from 28 euro/tCO2 in a model that abstracts from demography, to 94 euro/tCO2 in our calibrated model. |
| Keywords: | climate change, social cost of carbon, environmental policy, demographic trends |
| JEL: | H23 J11 Q54 Q58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6617&r=age |
| By: | Joan Costa-i-Font |
| Abstract: | We examine the presence of a systematic preference for independent living at old age which we refer as “institutionalization aversion” (IA). Given that IA is not observable from revealed preferences, we draw on a survey experiment to elicit individuals’ willingness to pay (WTP) to avoid institutionalization (e.g., in a nursing home), using a double-bounded referendum WTP format. Our results suggest robust evidence of IA and reveal a willingness to pay of up to 16% of respondent’s (individuals over fifty-five years of age) average income. We find that estimates of the willingness to pay to avoid institutionalization (or €292 at the time of the study) exceed the amount respondents are willing to pay for home health care at old age in the event of a mild impairment (€222). WTP estimates vary with income, age and especially, respondents’ housing conditions. Finally, we test the sensitivity of our estimates to anchoring effects and ‘yea-saying’ biases. |
| Keywords: | institutionalisation aversion, state-dependent preferences, home health care, willingness to pay, caregiving, referendum format |
| JEL: | R21 I18 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6703&r=age |
| By: | Paula Cristina Albuquerque |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp172017&r=age |
| By: | Thomas K. Bauer (RWI, Ruhr-University Bochum and IZA); Matthias Giesecke (RWI and IZA); Laura M. Janisch (RWI, RGSEcon and Ruhr-University Bochum) |
| Abstract: | We examine the long-run effects of forced migration from Eastern Europe into post-war Germany. Existing evidence suggests that displaced individuals are worse off economically, facing a considerably lower income and a higher unemployment risk than comparable natives even twenty years after being expelled. We extend this literature by investigating the relative performance of forced migrants across the entire life cycle. Using social security records that document the exact date of death and a proxy for pre-retirement lifetime earnings, we estimate a signifi cantly and considerably higher mortality risk among forced migrants compared to native West-Germans. The adverse displacement effect persists throughout the earnings distribution except for the top quintile. Although forced migrants are generally worse off regarding mortality outcomes, those with successful labor market histories seem to overcome the long-lasting negative consequences of flight and expulsion. |
| Keywords: | Forced Migration, Di erential Mortality, Lifetime Earnings, Economic History |
| JEL: | I12 J61 O15 R23 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:crm:wpaper:1709&r=age |
| By: | Martin Boyer; Philippe De Donder; Claude Fluet; Marie-Louise Leroux; Pierre-Carl Michaud |
| Abstract: | We conduct a stated-choice experiment where respondents are asked to rate various insurance products aimed to protect against financial risks associated with long-term care needs. Using exogenous variation in prices from the survey design, and objective risks computed from a dynamic microsimulation model, these stated-choice probabilities are used to predict market equilibrium for long-term care insurance using the framework developped by Einav et al. (2010). We investigate in turn causes for the low observed take-up of long-term care insurance in Canada despite substantial residual out-of-pocket financial risk. We first find that awareness and knowledge of the product is low in the population: 44% of respondents who do not have long-term care insurance were never offered this type of insurance while overall 31% report no knowledge of the product. Although we find evidence of adverse selection, results suggest it plays a minimal role in limiting take-up. On the demand side, once respondents have been made aware of the risks, we find that demand remains low, in part because of misperceptions of risk, lack of bequest motive and home ownership which may act as a substitute. |
| Keywords: | long-term care insurance, adverse selection, stated-preference, health, insurance |
| JEL: | I11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6698&r=age |
| By: | Bridget McNally (Department of Economics, Finance and Accounting, Maynooth University.) |
| Abstract: | Purpose - This paper argues that the accounting standards’ requirement for pension scheme liabilities to be discounted by reference to market yields at the end of the reporting period on high quality corporate bonds, potentially produces an artificial result which is at odds with the “fair representation” objective of these standards. Design/methodology/approach –The approach is a theoretical analysis of the relevant reporting standards with the use of a theoretical example to demonstrate the impact where trustees adopt a hedged approach to portfolio investment. Findings - Where the fund has adopted a hedging strategy and has invested in “risk – free” assets, the term, quantity and duration/maturity of which, is intended to match the term quantity and maturity of the scheme liabilities, applying the requirements potentially results in the reporting in sponsoring company financial statements of fluctuating surpluses or deficits each year which are potentially ill-informed and misleading. Originality/value – Pension scheme surpluses or deficits reported in the financial statements of listed companies are potentially very significant numbers, however the dangers posed by theoretical nature of the calculation has largely gone unreported. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n287-17.pdf&r=age |
| By: | Maik T. Schneider; Ralph Winkler |
| Abstract: | We study the role of endogenous healthcare choices by households to extend their expected lifetimes on economic growth and welfare in a decentralized overlapping generations economy with the realistic feature that households’ savings are held in annuities. We characterize healthcare spending in the decentralized market equilibrium and its effects on economic growth. We identify the moral-hazard effect in healthcare investments when annuity rates are conditioned on average mortality and explain the conditions under which this leads to over-investment in healthcare. Moreover, we specify the general equilibrium effects and macroeconomic repercussions associated with this moral-hazard effect. In a numerical simulation of our model with OECD data, we find that the moral-hazard effect may be substantial and implies sizeable welfare losses of approximately 1.5%. At a more general level, our study suggests that welfare improvements from longevity increases may be lower than suggested when considered in planner economies. |
| Keywords: | annuities, economic growth, endogenous longevity, healthcare expenditures, healthcare technology, moral hazard, pension systems, welfare analysis |
| JEL: | O40 I10 J10 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6367&r=age |
| By: | Stefan Bauernschuster; Anastasia Driva; Erik Hornung |
| Abstract: | We investigate the impact on mortality of the world’s first compulsory health insurance, established by Otto von Bismarck, Chancellor of the German Empire, in 1884. Employing a multi-layered empirical setup, we draw on international comparisons and difference-in-differences strategies using Prussian administrative panel data to exploit differences in eligibility for insurance across occupations. All approaches yield a consistent pattern suggesting that Bismarck’s Health Insurance generated a significant mortality reduction. The results are largely driven by a decline of deaths from infectious diseases. We present prima facie evidence that diffusion of new hygiene knowledge through physicians was an important channel. |
| Keywords: | health insurance, mortality, demographic transition, Prussia |
| JEL: | I13 I18 N33 J11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6601&r=age |