nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒02‒26
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Earnings Test, Non-actuarial Adjustments and Flexible Retirement By Axel H. Börsch-Supan; Klaus Härtl; Duarte N. Leite
  2. How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior By Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
  3. Aggregate risks, intergenerational risk-sharing and fiscal sustainability in the Finnish earnings-related pension system By Lassila, Jukka
  4. Political viability of intergenerational transfers. An empirical application By Gianko Michailidis; Concepció Patxot
  5. A parametric social security system with skills heterogeneous agents By Thomaidou, Fotini
  6. Retirement and Unexpected Health Shocks By Apouey, Bénédicte; Guven, Cahit; Senik, Claudia
  7. Labor Reallocation and Demographics By Tyrowicz, Joanna; Van der Velde, Lucas
  8. A Review of Norges Bank's Active Management of the Government Pension Fund Global By Dahlquist, Magnus; Odegaard, Bernt Arne
  9. Identifying Age Penalty in Women's Wages: New Method and Evidence from Germany 1984-2014 By Tyrowicz, Joanna; Van der Velde, Lucas; van Staveren, Irene
  10. Tax-Free Savings Accounts: Who uses them and how? By Adam M. Lavecchia
  11. Looking behind the financial cycle: the neglected role of demographics By Alessandro Ferrari
  12. First People Lost: Determining the State of Status First Nations Mortality in Canada Using Administrative Data By Donna Feir; Randall Akee

  1. By: Axel H. Börsch-Supan; Klaus Härtl; Duarte N. Leite
    Abstract: In response to the challenges of increasing longevity, an obvious policy response is to gradually increase the statutory eligibility age for public pension benefits and to shut down pathways to early retirement such as special rules for women. This is, however, very unpopular. As an alternative, many countries have introduced “flexibility reforms” which allow combining part-time work and partial retirement. A key measure of these reforms is the abolishment of earnings tests. It is claimed that these reforms increase labor supply and therefore, also the sustainability of pension systems. We show that these claims may not be true in the circumstances of most European countries. To this end, we employ a life-cycle model of consumption and labor supply where the choices of labor force exit and benefit claiming age are endogenous and potentially separate. Earnings tests force workers to exit the labor market when claiming a pension. After abolishing the earnings test, workers can claim their benefits and can keep on working, potentially increasing labor supply. Our key result is that the difference between exit and claiming age strongly depends on the actuarial neutrality of the pension system and can become very large. Abolishing an earnings test as part of a “flexibility reform” may therefore create more labor supply but at the same time, reduce the average claiming age when adjustments remain less than actuarial, thereby worsening rather than improving the sustainability of public pension systems.
    JEL: D91 E17 E21 H55 J11 J22 J26
    Date: 2018–02
  2. By: Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
    Abstract: This paper explores how an environment of persistent low returns influences saving, investing, and retirement behaviors, as compared to what in the past had been thought of as more “normal” financial conditions. Our calibrated lifecycle dynamic model with realistic tax, minimum distribution, and Social Security benefit rules produces results that agree with observed saving, work, and claiming age behavior of U.S. households. In particular, our model generates a large peak at the earliest claiming age at 62, as in the data. Also in line with the evidence, our baseline results show a smaller second peak at the (system-defined) Full Retirement Age of 66. In the context of a zero return environment, we show that workers will optimally devote more of their savings to non-retirement accounts and less to 401(k) accounts, since the relative appeal of investing in taxable versus tax-qualified retirement accounts is lower in a low return setting. Finally, we show that people claim Social Security benefits later in a low interest rate environment.
    JEL: D14 D78 D91 G11 G22 H55 J14 J26
    Date: 2018–02
  3. By: Lassila, Jukka
    Abstract: We study how aggregate demographic and economic risks affect the finances of the Finnish earnings-related pension system and the different generations of the insured. As a partially funded defined-benefit system, demographic risks and asset yield risks directly affect the contributions. Our analysis, based on a general equilibrium overlapping-generations model, show that these risks also affect wages and thus pension benefits and replacement rates. Productivity growth also affects wages and thus both contributions and benefits. We also analyze quantitatively the use of pension funds with the aim of smoothing contributions over time and compare the outcomes of the current system to an alternative system with the same benefit rules but no funding. Smoothing is affected by the revisions in long-term forecasts and is thus imperfect. In addition, variation in asset yields often cause clashes with solvency limits. We find that funding results in more varying contributions over time than would be the case without funding. Concerning generational equity, young generations benefit from funding in the form of lower contributions and higher wages, and their consumption possibilities are further increased by the improved fiscal stance of the state and municipalities.
    Keywords: Pensions, funding, contribution smoothing, risks, generational fairness
    JEL: E17 H55 J11
    Date: 2018–02–21
  4. By: Gianko Michailidis (Universitat de Barcelona); Concepció Patxot (Universitat de Barcelona)
    Abstract: Public intergenerational transfers (IGTs) may arise because of the failure of private arrangements to provide optimal economic resources for the young and the old. We examine the political sustainability of the system of public IGTs by asking what the outcome would be if the decision per se to reallocate economic resources between generations was put to the vote. By exploiting the particular nature of National Transfer Accounts data – transfers for pensions and education and total public transfers – and the political economy application proposed by Rangel (2003) we show that most developed countries would vote in favor of a joint public education and pension system. Moreover, our results indicate that a system of total public IGTs to the young and elderly would attract substantial political support and, hence, would be politically viable for most countries in the sample.
    Keywords: Intergenerational Transfers, Population Ageing, Pay-As-You-Go Financing, National Transfer Accounts, Political Economy.
    JEL: D70 H50 J10 P16
    Date: 2018
  5. By: Thomaidou, Fotini
    Abstract: The purpose of this study is to explore the effects of exogenous social security system parameters on welfare. The set up is an overlapping generations economy, with skills heterogeneity, which distinguishes consumers between high and low skilled. The lowskilled receive an extra supplement pension. The social security system has three exogenous parameters: the benefits, the contributions, and the funding parameter. The author examines and compares the effects of these three exogenous social security parameters, first under inelastic and then under elastic labor supply, on individuals welfare. He finds that when labor supply is inelastic, the parameters affect differently the welfare of the high and the low-skilled, since for the latter, we must also take into account the indirect effects through the supplement pension provision. When labor supply is elastic, the effects of changes in the social security parameters on welfare are the same for both the high and the low skilled, as in the case of inelastic labor supply.
    Keywords: social security,pensions,PAYGO,funded systems,welfare,skills heterogeneity
    JEL: D11 E21 H55
    Date: 2018
  6. By: Apouey, Bénédicte (Paris School of Economics); Guven, Cahit (Deakin University); Senik, Claudia (Paris School of Economics)
    Abstract: Do people form correct expectations about the impact of retirement on their health? This paper looks at unexpected health shocks that hit people after they retire. Using data from the Household, Income and Labour Dynamics in Australia survey (waves 2001-2014), we construct measures of unexpected health shocks for each year, using information on respondents' views about the expected and past evolution of their health status. By definition, unexpected health shocks are immune to the problem of reverse causality (running from health condition to retirement). Our findings indicate that retirement increases the likelihood of positive health shocks and decreases the probability of negative shocks for men, with no clear results for women. These shocks are mirrored by variations in life satisfaction of the same nature (e.g. increased life satisfaction in case of unexpected positive health shocks). Other indicators of mental and physical health taken from the SF-36 vary in the same way, i.e. improve unexpectedly after retirement for men. These findings suggest that, at least in the case of men, people's desire to retire may not be based on perfectly correct expectations about the impact of this move, but is aligned with its actual consequence: retirement exerts a positive causal impact on health.
    Keywords: life satisfaction, health shocks, Australia, HILDA, health, retirement
    JEL: I12 I31 J26
    Date: 2017–12
  7. By: Tyrowicz, Joanna (University of Warsaw); Van der Velde, Lucas (Warsaw University)
    Abstract: We explore data from all transition economies over nearly two decades, providing insights on the mechanisms behind labor force reallocation. We show that worker flows between jobs in different industries are rare relative to the demographic flows of youth entry and elderly exit. The same applies to the flows between state-owned enterprises and private firms. In fact, evidence suggest that changes in the demand for labor were accommodated mostly through demographic flows, with a smaller role left for job transitions. We also show that the speed of changing the ownership structure in the economy has driven exits to retirement, in particular the early exits.
    Keywords: hirings, separations, transition, worker flows, unemployment, retirement
    JEL: P2 P5 D2 J6
    Date: 2017–12
  8. By: Dahlquist, Magnus (Stockholm School of Economics); Odegaard, Bernt Arne (University of Stavanger)
    Abstract: A Review of Norges Bank's Active Management of the Government Pension Fund Global
    Keywords: Norway; Sovereign Wealth Fund; Performance Evaluation; Norges Bank
    JEL: G10
    Date: 2018–01–05
  9. By: Tyrowicz, Joanna (University of Warsaw); Van der Velde, Lucas (Warsaw University); van Staveren, Irene (ISS, Erasmus University Rotterdam)
    Abstract: Given theoretical premises, gender wage gap adjusted for individual characteristics is likely to vary over age. We extend DiNardo, Fortin and Lemieux (1996) semi-parametric technique to disentangle year, cohort and age effects in adjusted gender wage gaps. We rely on a long panel of data from the German Socio-Economic Panel covering the 1984-2015 period. Our results indicate that the gender wage gap increases over the lifetime, for some birth cohorts also in the post-reproductive age.
    Keywords: gender wage gap, age, cohort, decomposition, non-parametric estimates, Germany
    JEL: J31 J71
    Date: 2018–01
  10. By: Adam M. Lavecchia (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: This paper studies the savings effect of Canadian Tax-Free Savings Account (TFSAs) using microdata from the 2012 Survey of Financial Security. TFSA contributions are made with after-tax income, balances accumulate tax-free and withdrawals do not increase taxable income. The paper makes two important contributions. First, I characterize the profiles of TFSA owners, documenting new patterns in account ownership and balances. The age profile of TFSA ownership is U-shaped and balances are positively correlated with educational attainment and saving in other retirement accounts. Second, I develop a new instrumental variables strategy to estimate whether TFSA balances crowd-out saving in taxable financial assets and saving in traditional tax-deferred plans. The results suggest that TFSA balances crowd-out saving in taxable fixed income assets and have no statistically significant effect on balances in tax-deferred accounts.
    Keywords: Tax-preferred savings accounts; pre-paid versus post-paid; Tax-Free Savings Account;crowd-out
    JEL: H2 H31
    Date: 2018
  11. By: Alessandro Ferrari (Bank of Italy)
    Abstract: Data demonstrate a correlation between demographic variables and financial cycle: an increase in the working-age population is associated with an expansion of the financial cycle, that is, credit growth and increased housing prices. To account for this stylized fact, this paper uses an OLG model with data on housing prices, life-cycle of income, and consumption. A transitory baby boom, which increases the working-age population, leads to higher housing prices and household borrowing.
    Keywords: financial cycle, demographic trends, overlapping generations, housing
    JEL: D53 E21 E32 J11
    Date: 2017–12
  12. By: Donna Feir (Department of Economics, University of Victoria); Randall Akee (Department of Public Policy, University of California, Los Angeles)
    Abstract: We present the most comprehensive set of estimates to date for Status First Nations mortality in Canada. We use administrative data from Indigenous and Northern Affairs Canada to establish a set of stylized facts regarding Status First Nations mortality rates from 1974 to 2013. Between 2010 to 2013, the mortality rates of Status First Nations men and boys are highest in nearly all age groups considered with the exception of Status girls between the ages of 10 to 14. On reserve, Status boys between the ages of 15 to 19 have mortality rates nearly four times that in the general population, while Status girls between the ages of 15 to 19 have mortality rates five times that in the general population. We demonstrate substantial regional variation in mortality rates which are correlated with economic factors. We document that there has been no improvement in mortality among Status women and girls living on-reserve in the last 30 years and relative mortality rates for all Status people on-reserve has not changed in 40 years. Mortality rates may be worsening among some age groups. JEL Classification: J15,J16,I15,I14
    Keywords: Mortality, First Nations, Native American, Status First Nation, gender bias
    Date: 2018–02–14

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