nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒04‒23
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Return to Work and Women’s Employment Decisions By Nicole Maestas
  2. Medical Expenses and Saving in Retirement: The Case of U.S. and Sweden By Nakajima, Makoto; Telyukova, Irina A.
  3. The Italian Pension Gap: a Stochastic Optimal Control Approach By Alessandro Milazzo; Elena Vigna
  4. The enduring link between demography and inflation By Juselius, Mikael; Takáts, Előd
  5. How the baby boomers' retirement wave distorts model-based output gap estimates By Wolters, Maik Hendrik
  6. Investigation of the Methods of Investing Pension Savings in Russia and in the World By Abramov, Alexander E.; Akshentseva, Ksenia; Radygin, Alexander; Chernova, Maria I.
  7. How Patient are Consumers? Evidence from Luxembourg Wealth Study By Walid Merouani
  8. Age Gap in Voter Turnout and Size of Government Debt By Ryo Arawatari; Tetsuo Ono
  9. Estimating Aging Effects in Running Events By Ray C. Fair; Edward H. Kaplan
  10. “Ageing and health-related quality of life: evidence from Catalonia (Spain)” By Manuela Alcañiz; Aïda Solé-Auró
  11. Retainers and retirement: Pieter Bruegel (†1566), pensioner in Sint-Janshuis retirement home, Bergen op Zoom By Zuijderduijn, Jaco
  12. Demographic Change and Political Polarization in the United States By Boxell, Levi
  13. Finland’s Public Sector Balance Sheet; A Novel Approach to Analysis of Public Finance By Maren Brede; Christian Henn
  14. Choice of Benchmark When Forecasting Long-term Stock Returns By Ioannis Kyriakou; Parastoo Mousavi; Jens Perch Nielsen; Michael Scholz

  1. By: Nicole Maestas
    Abstract: It is well documented that individuals in couples tend to retire around the same time. But because women tend to marry older men, this means many married women retire at younger ages than their husbands. This fact is somewhat at odds with lifecycle theory that suggests women might otherwise retire at later ages than men because they have longer life expectancies, and often have had shorter careers on account of childrearing. As a result, the opportunity cost of retirement—in terms of foregone potential earnings and accruals to Social Security wealth—may be larger for married women than for their husbands. Using the Health and Retirement Study (HRS), I find evidence that the returns to additional work beyond mid-life are greater for married women than for married men. The potential gain in Social Security wealth alone is enough to place married women on nearly equal footing with married men in terms of Social Security wealth at age 70.
    JEL: J14 J22 J26 J3
    Date: 2018–03
  2. By: Nakajima, Makoto (Federal Reserve Bank of Minneapolis); Telyukova, Irina A. (Intensity Corporation)
    Abstract: Many U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this paper, we document stark differences between U.S. and Sweden regarding out-of-pocket medical and long-term-care expenses late in life, and use them to investigate their role in discouraging the elderly from dissaving. Using a consumption-saving model in retirement with significant uninsurable expense risk, we find that medical expense risk accounts for a quarter of the U.S.-Sweden difference in retirees' dissaving patterns. Furthermore, medical expense risk affects primarily financial assets, while its impact on housing is limited.
    Keywords: Household finance; Aging; Retirement saving; Health; Cross-country analysis
    JEL: D14 E21 J14 J26
    Date: 2018–04–10
  3. By: Alessandro Milazzo; Elena Vigna
    Abstract: We study the gap between the state pension provided by the Italian pension system pre-Dini reform and post-Dini reform. The goal is to fill the gap between the old and the new pension by joining a defined contribution pension scheme and adopting an optimal investment strategy that is target-based. We find that it is possible to cover, at least partially, this gap with the additional income of the pension scheme, especially in the presence of late retirement and in the presence of stagnant career. Workers with dynamic career and workers who retire early are those who are most penalised by the reform. Results are intuitive and in line with previous studies on the subject.
    Date: 2018–04
  4. By: Juselius, Mikael; Takáts, Előd
    Abstract: Demographic shifts, such as population ageing, have been suggested as possible explanations for the recent decade-long spell of low inflation. We identify age structure effects on inflation from cross-country variation in a panel of 22 countries from 1870 to 2016 that includes standard monetary factors. We document a robust relationship that is in line with the lifecycle hypothesis: a larger share of dependent population is inflationary, whereas a larger share of working age population is disinflationary. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.
    JEL: E31 E52 J11
    Date: 2018–04–06
  5. By: Wolters, Maik Hendrik
    Abstract: The paper illustrates based on an example the importance of consistency between the empirical measurement and the concept of variables in estimated macroeconomic models. Since standard New Keynesian models do not account for demographic trends and sectoral shifts, the authors proposes adjusting hours worked per capita used to estimate such models accordingly to enhance the consistency between the data and the model. Without this adjustment, low frequency shifts in hours lead to unreasonable trends in the output gap, caused by the close link between hours and the output gap in such models. The retirement wave of baby boomers, for example, lowers U.S. aggregate hours per capita, which leads to erroneous permanently negative output gap estimates following the Great Recession. After correcting hours for changes in the age composition, the estimated output gap closes gradually instead following the years after the Great Recession.
    Keywords: low frequency trends,demographic trends,hours per capita measurement,output gap estimates,DSGE models,Bayesian estimation
    JEL: C54 E32 J11
    Date: 2018
  6. By: Abramov, Alexander E. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Akshentseva, Ksenia (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Radygin, Alexander (Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy); Chernova, Maria I. (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The authors conducted an analysis of the effectiveness of managing the pension savings portfolio of APF for 2005-2016. It is shown that in the long-term time interval, pension accumulation portfolios in APFs have not yet managed to outbid inflation. The gap between the profitability of APF portfolios and the profitability of investing pension savings on individual pension accounts of citizens in APF remains significant. Based on the existing structure of pension portfolios in APF, the potential profitability of their portfolios was calculated, which turned out to be almost 3 percentage points higher than the actual yield from portfolio management published by APF. The analysis of yields of APF portfolios taking into account the risk has shown that at a 10-year time horizon, the profitability of funds lies close to the set of optimal portfolios for Markowitz. This suggests that the main problem in the effectiveness of portfolio management of pension savings lies not in the effectiveness of the APF itself, but in the limitations of the instruments of the domestic market from the point of potential of profitability and risk.
    Date: 2018–03
  7. By: Walid Merouani
    Abstract: In his paper on wealth accumulation and individual lifecycle, Tony Atkinson (1971) used lifecycle models to measure inequalities between and within age (sex) groups. He has mentioned the importance of pension in reducing wealth inequality. Following Atkinson, many authors and international institutions recognise that the development of pension systems is the solution for reducing inequalities and preventing poverty in elderly. However, the voluntarily participation of all the workers to pension system, especially to the third pillar of the system, is really controversial. A critical issue in analysing pension saving is the unobserved heterogeneity in household time preferences. This article displays this heterogeneity by building average ages-profiles of consumption, income and wealth in eight countries: Australia, Finland, France, Greece, Hungary, Italy, United Kingdom, and USA. These profiles are constructed across different socioeconomic groups of households. The findings show a high correlation between consumption and income revealing the lack of foresight of the household of the studied societies. Furthermore, we confirm Atkinson’s results (1971) about wealth distribution; we show the heterogeneity of wealth accumulation across socio-demographic group of households. By using wealth accumulation profiles we conclude that male, high educated, self-employed and risk seekers households are wealthier and forward looking. Our results also show that the presence of children in the households make them wealthier and forward looking.
    Keywords: Income, Consumption, net worth heterogeneity, forward looking
    Date: 2018–03
  8. By: Ryo Arawatari (Graduate School of Economics, Nagoya University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: We consider a cross-country difference of age gap in voter turnout and its im-pact on fiscal policymaking in a multi-country, overlapping-generations model. We present con ict over fiscal policy between successive generations (i.e., the young and elderly). We show that higher turnout of the elderly in voting may have a non- monotone effect on the size of government debt, depending on voters' inter-temporal elasticity of substitution of public expenditure.
    Keywords: fiscal policy; voter turnout; public debt; probabilistic voting; small open economies.
    JEL: D70 E62 H63
    Date: 2016–10
  9. By: Ray C. Fair (Cowles Foundation, Yale University); Edward H. Kaplan (School of Management, Yale University)
    Abstract: This paper uses world running records by age to estimate a biological frontier of decline rates. Two models are compared: a linear/quadratic (LQ) model and a non-parametric model. Two estimation methods are used: 1) minimizing the squared difference between the observed records and the modeled biological frontier and 2) using extreme value theory to estimate the biological frontier that maximizes the probability of observing the existing world records by age. The results support the LQ model and suggest there is linear percentage decline up to the late 70’s and quadratic decline after that. The extreme value estimates suggest that the true biological frontier is on average about 8 percent below the existing world records. The estimated age factors are also compared to the World Master Athletics (WMA) age factors. The two sets of age factors are close except at the old ages, where the WMA factors are noticeably smaller. Also, the WMA age factors do not meet an important biological constraint.
    Keywords: Aging effects, Running events
    JEL: H19 J24
    Date: 2017–08
  10. By: Manuela Alcañiz (Risckcenter Research group–IREA. Av. Diagonal 696; 08034 Barcelona ,Spain); Aïda Solé-Auró (DemoSoc Research Group, Department of Political and Social Sciences Universitat Pompeu Fabra; Ramon Trias Fargas, 25-27, 08005, Barcelona, Spain.)
    Abstract: (Background) Reaching advanced old age is more common now than ever. The sustained growth in longevity raises questions about why some people can feel in good quality of life until the last stages, while others seem to accuse the natural deterioration to a larger extent. The self-perceived quality of life has a subjective component, but is also mediated by some easily measurable factors such as sociodemography, health, functioning and lifestyles. (Methods) This study uses nationally representative data for Catalonia (Spain) to explain the health-related quality of life (HRQL) of the population aged 80 and above. Cross-sectional data from 2011 to 2016 was provided by an official face-to-face survey. HRQL was measured through the EuroQol-5D, consisting of a 5-question descriptive system (EQ-5D), plus a visual analogue scale (EQ-VAS) that summarizes the current self-perceived health. Linear regression was used to identify variables influencing the EQ-VAS score. Results: The dimensions of the EQ-5D that more severily disturbed the HRQL were mobility problems, pain/discomfort and anxiety/depression. Self-care or usual activity problems had a milder impact. Other variables were significantly associated with HRQL. Adjusting for age and sex, low education, low social class, being underweighted or obese, having chronic conditions and disabilities, the presence of hospitalizations or visits to the emergency department, taking prescription drugs and limitations in sensory-related abilites were predictors of a poor HRQL. (Conclusions) Our study identified the impact of several social, health and healthcare variables on the HRQL on 80-plus population. The multidimensional nature of the results suggests the need for a comprehensive approach to HRQL. Health prevention and promotion policies must address the old age as a specially sensitive stage of life.
    Keywords: longevity, health-related quality of life, EuroQol-5D, Spain. JEL classification:I14.
    Date: 2018–01
  11. By: Zuijderduijn, Jaco (Department of Economic History, Lund University)
    Abstract: In 1553-1554 one Pieter Bruegel purchased a corrody in Sint-Janshuis, a retirement home for former employees of the Marquises of Bergen, where he would receive necessities of life and a place to stay until he would pass away. The paper reconstructs the early financial history of the retirement home, demonstrating how it was unable to cope with inflation, and struggled to provide for the inmates. It is suggested therefore Bruegel did not merely retire into Sint-Janshuis, but purchased an extra ration of food, clothes and fuel: apparently his background as a barber-surgeon at one of the most prestigious courts of the Low Countries allowed him to pay for a relatively decent old age. Further evidence corroborates that compared to his fellow-inmates, Bruegel was relatively wealthy. The paper also discusses evidence linking the barber-surgeon to the painter Pieter Bruegel the Elder, whose origins are almost completely unknown. Based on his name, estimated year of birth, and residence in Bergen op Zoom, the barber-surgeon is a strong candidate for the father of the famous painter. If we are correct in this, the latter would have come from an urban middle-class background with close ties to one of the most important courts in the Low Countries: the Renaissance palace Markiezenhof in Bergen op Zoom.
    Keywords: retirement; investment behaviour; financial history; art history
    JEL: G23 N23 N83 N93
    Date: 2018–04–13
  12. By: Boxell, Levi
    Abstract: I construct an index of political polarization using seven previously proposed measures. I estimate the relative propensity for polarization across demographic groups in a regression framework and examine the extent to which demographic change can explain recent trends in polarization. Assuming fixed propensities for polarization, I estimate that 25 to 59 percent of the change in polarization between 1984 and 2016 can be attributed to demographic change in the United States.
    Keywords: political polarization, demographic change, affect polarization, ideological polarization
    JEL: D72 H89 J10 J11 Z0
    Date: 2018–03–24
  13. By: Maren Brede; Christian Henn
    Abstract: We construct a comprehensive public sector balance sheet for Finland from 2000 to 2016 by complementing general government statistics with data on public corporations and public pensions. We show that exposure to valuation changes in equity markets through asset holdings and increases in pension liabilities relative to GDP amplify crisis impacts on public finances. We expand the balance sheet by including present value estimates of future fiscal flows; this allows us to perform fiscal stress tests and policy experiments. These analyses suggest that Finland’s public finances will remain sound provided ongoing reform and consolidation efforts to address aging pressures are implemented as planned.
    Date: 2018–04–06
  14. By: Ioannis Kyriakou (Cass Business School, City, University of London, UK); Parastoo Mousavi (Cass Business School, City, University of London, UK); Jens Perch Nielsen (Cass Business School, City, University of London, UK); Michael Scholz (University of Graz, Austria)
    Abstract: Recent advances in pension product development seem to favour alternatives to the risk free asset so often used in financial theory. In this paper, we investigate other benchmarks of the financial model than the classical risk free asset; for example, a benchmark following an inflation index is just one important case. Modelling extra returns above the inflation of risky assets is important, for example, for actuarial applications aiming at providing real income forecasts for pensioners. We study market timing when three alternative benchmarks are considered: the risk free rate, inflation and the long bond yield. We conclude that forecasting future stock returns is of similar complexity for all three considered benchmarks. From a pension fund modelling perspective, it therefore seems that one should use the most convenient benchmark for the problem at hand.
    Keywords: Benchmark; Cross validation; Prediction; Stock returns
    JEL: C14 C53 C58 G22
    Date: 2018–04

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