nep-age New Economics Papers
on Economics of Ageing
Issue of 2019‒02‒25
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Money can buy me life. The Effect of a Basic Pension on Mortality: a Regression Discontinuity Design By Miglino, Enrico; Navarrete H., Nicolas; Navarrete H., Gonzalo; Navarrete H., Pablo
  2. Capital Flows in an Aging World By Zsofia Barany; Nicolas Coeurdacier; Stéphane Guibaud
  3. Does Financial Regulation Unintentionally Ignore Less Privileged Populations? The Investigation of a Regulatory Fintech Advancement, Objective and Subjective Financial Literacy By Maya Haran Rosen; Orly Sade
  4. Retirement Implications of a Low Wage Growth, Low Real Interest Rate Economy By Jason Scott; John B. Shoven; Sita Slavov; John G. Watson
  5. How Does Supplemental Medicare Coverage Affect the Disabled Under-65 Population?: An Exploratory Analysis of the Health Effects of States’ Medigap Policies for SSDI Beneficiaries By Philip Armour; Claire O’Hanlon
  6. From Microeconomic Favoritism to Macroeconomic Populism By Saint-Paul, Gilles
  7. The generation gap in direct democracy By Ahlfeldt, Gabriel; Maennig, Wolfgang; Mueller, Steffen
  8. Generational Bias and Tax Policy By Alan Krause

  1. By: Miglino, Enrico; Navarrete H., Nicolas; Navarrete H., Gonzalo; Navarrete H., Pablo
    Abstract: This paper estimates the effect of a permanent income increase for the elderly on their health outcomes. Our regression discontinuity design exploits an eligibility cutoff in a Chilean basic pension program that grants monthly payments of 40 percent of the minimum wage to pensionless retirees. Four years after applying pension, recipients are 2.5 percentage points less likely to die, with lower incidence of respiratory and circulatory diseases. The effect is concentrated on pension recipients living without working-age relatives, who have more children if living with recipients. This seems explained by pre-existing income transfers from working-age relatives to retirees, which cease when payments begin. Results suggest that increasing income for older individuals could reduce health inequalities across income groups, and mitigate the inter-generational transmission of poverty by alleviating the financial burden imposed on younger relatives.
    Keywords: Desarrollo, Economía, Productividad,
    Date: 2018
  2. By: Zsofia Barany (Département d'économie); Nicolas Coeurdacier (Département d'économie); Stéphane Guibaud (Département d'économie)
    Abstract: We investigate the importance of worldwide demographic evolutions in shaping capital flows across countries and over time. Our lifecycle model incorporates cross-country differences in fertility and longevity as well as differences in countries’ ability to borrow inter-temporally and across generations through social security. In this environment, global aging triggers uphill capital flows from emerging to advanced economies, while country-specific demographic evolutions reallocate capital towards countries aging more slowly. Our quantitative multi-country overlapping generations model explains a large fraction of long-term capital flows across advanced and emerging countries.
    Keywords: Aging; Household Saving; International Capital Flows
    JEL: E21 F21 J11
    Date: 2018–12
  3. By: Maya Haran Rosen (Bank of Israel); Orly Sade (Hebrew University of Jerusalem)
    Abstract: In 2013-2015, the Israeli insurance and long term savings regulator reached out to the Israeli population, recommending the use of a new centralized Internet portal created by the regulator to help individuals find inactive retirement plans and withdraw inactive funds. We find that the government's effort did not result in withdrawals of the majority of the accounts, and did not reach all subpopulations equally. Provident fund records indicate that those who took action and withdrew funds following the campaign live in central locations that have higher socioeconomic rankings, and they are relatively older. Using survey data, we found evidence that those with low financial literacy and confidence in their knowledge of retirement planning and the unemployed were less likely to have been aware of the financial regulatory campaigns. It seems that confidence in one's financial knowledge is more important for financial action than objective literacy. The survey further shows the importance of gender, age, education, and immigration status. We conclude that less privileged populations were less likely to have been aware of the campaign, to enter the Internet portal, and to have taken action based on the information.
    Date: 2017–08
  4. By: Jason Scott; John B. Shoven; Sita Slavov; John G. Watson
    Abstract: We examine the implications of persistent low real interest rates and wage growth rates on individuals nearing retirement. We begin by reviewing the concept of r star – the long-term real, safe interest rate that is neither expansionary nor contractionary – and presenting recent estimates suggesting that this value has declined. We then examine the implications of low returns and low wage growth for individuals currently aged 45 and 55. We find that low returns and low wage growth have substantial welfare effects, with compensating variations that are often in the hundreds of thousands of dollars. Low returns increase optimal Social Security claiming ages and the marginal benefit of working longer, while low wage growth decreases the marginal benefit of working longer. Low economy-wide wage growth has a much larger welfare effect than low individual wage growth due to wage indexation of the initial benefit and the progressivity of the Social Security benefit formula. When individual wage growth alone is low, wage indexation is unchanged, and the progressivity of the benefit formula provides insurance. When economy-wide wage growth is low, wage indexation is less generous and there is no insurance benefit from progressivity as average wages fall along with individual wages.
    JEL: D14 H55 J26
    Date: 2019–02
  5. By: Philip Armour; Claire O’Hanlon
    Abstract: A substantial portion of the costs associated with, and the value to beneficiaries of, Social Security Disability Insurance is Medicare eligibility. However, the benefits of this eligibility can vary due to differences in state policies on supplemental Medicare coverage, also known as Medigap. Although Medigap policies are federally regulated to be issued to 65-and-over Medicare beneficiaries with specific restrictions over underwriting, these policies are left to states to regulate with regard to the under-65 SSDI population, generating substantial cross-state and temporal variation. This paper documents the variation in availability and generosity of under-65 Medigap eligibility for the SSDI population. Furthermore, it exploits this variation to provide initial estimates of how this eligibility affects the health status of non-Medicaid-eligible SSDI recipients. Our main finding is that requiring Medigap plans be offered for under-65 SSDI recipients substantially improves self-reported health of this population, with suggestive evidence that this improvement is stronger as underwriting restrictions increase and among SSDI beneficiaries with mental health conditions. The estimated effect is highly robust to alternative scaling or categorizations of self-reported health, choice of data set, inclusion of fixed effects, controls for local Medicare Advantage penetration, and falsification tests. This effect is nearly three times the size of the estimated increase in self-reported health in the Oregon Medicaid expansion.
    JEL: I13 H51 H55 J14
    Date: 2019–02
  6. By: Saint-Paul, Gilles
    Abstract: Why would people support policies that are macroeconomically unsound, in that they are more likely to lead to such events as sovereign crises, balance of payments crises, and the like? This may arise if decisive voters are likely to bear a lower fraction of the costs of the crisis, while benefitting from the short-run gains associated with those policies, such as greater public expenditure or lower taxes. I first discuss an illustrative model based on Saint-Paul et al. (2017), based on the assumption that in a crisis, not everybody can access his or her entitlement to publicly provided goods, a feature labelled "favoritism". If the decisive voter is relatively favored in this rationing process, then people are more likely to finance public expenditure by debt, the greater the degree of favoritism. Furthermore, favoritism and the likelihood of a crisis raises the level of public spending. Next, I consider the choice between electing a "populist" who reneges on anonymity when allocating the public good, even in normal times, and a "technocrat" who sticks to anonymity, and does all it takes to balance the budget. I show that the support for the populist is greater, (i) the greater the likelihood of default, (ii) the more depressed the macroeconomic environment, (iii) the greater the inherited level of public debt and (iv) the lower the state's fiscal capacity. I then argue that the model helps understanding some episodes in French pension reform. Some occupational groups supported unsustainable reductions in the retirement age because they expected that other workers would bear a higher proportion of the burden of future adjustment. Finally, using a panel of countries, I provide evidence in favor of some of the predictions of the model. As predicted, favoritism raises public debt, budget deficits, and public spending. It also raises the likelihood of a fiscal crisis through its effect on public debt. Furthermore, "populists" are more likely to conquer power, the higher the degree of debt and budget deficits, and the higher the level of government spending--the latter finding being consistent with the model's prediction on the effect of fiscal capacity.
    Keywords: Entitlements; favoritism; Fiscal Crises; inequality; political economy; populism; public debt; state capacity
    Date: 2019–01
  7. By: Ahlfeldt, Gabriel; Maennig, Wolfgang; Mueller, Steffen
    Abstract: We provide the first systematic documentation and analysis of a generation gap in direct democracy outcomes across a wide range of topics using postelection survey data covering more than 300 Swiss referenda and four decades. We find that young voters are more likely to support reform projects that are politically liberal, support the young, or protect the environment. We separate age and cohort effects without imposing functional form constraints using a panel rank regression approach. The aging effect on political orientation is robust for con-trolling for arbitrary cohort effects and appears to be driven by expected utility maximization and not by habitu-ation-induced status-quo bias. In Switzerland, population ageing is already affecting direct democracy outcomes. Five referenda since 2004 would have had a different outcome, had the population distribution remained at 1981 levels.
    Keywords: age; cohort; direct democracy; generation gap; Referendum; reform; status quo; utility
    JEL: D7 H3
    Date: 2019–01
  8. By: Alan Krause
    Abstract: We examine the nonlinear taxation of labour income and savings when the government places more weight on the welfare of the elderly than of young people. Our analysis is motivated by the observation that the elderly are more likely to vote. Compared to optimal taxation under a utilitarian social welfare function, we show that savings are subsidised, and young low-skill workers face a higher marginal labour tax rate. We also show that the lifetime utility of low-skill individuals is reduced, and that of high-skill individuals is increased, relative to optimal taxation under utilitarianism. An extension of the model to include generation-specific public spending is also considered.
    Keywords: generational policy; nonlinear taxation.
    JEL: H21 H42
    Date: 2019–02

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