nep-age New Economics Papers
on Economics of Ageing
Issue of 2019‒06‒24
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Redistributive Effects of Different Pension Systems When Longevity Varies by Socioeconomic Status By Miguel Sánchez-Romero; Ronald D. Lee; Alexia Prskawetz
  2. Do Private Household Transfers to the Elderly Respond to Public Pension Benefits? Evidence from Rural China By Nikolov, Plamen; Adelman, Alan
  3. Who Is in Favor of Immigration By Epstein, Gil S.; Katav-Herz, Shirit
  4. The price of demography By Barbiellini Amidei, Federico; Gomellini, Matteo; Piselli, Paolo
  5. Defined benefit pensions and homeownership in the post-Great Recession era By Murray, Tim
  6. Do potential future health shocks keep older Americans from using their housing equity? By Murray, Tim
  7. Women, Marriage, and the National Retirement Risk Index By Alicia H. Munnell; Wenliang Hou; Geoffrey T. Sanzenbacher
  8. Generational War on Inflation: Optimal Inflation Rates for the Young and the Old By FUJIWARA Ippei; HORI Shunsuke; WAKI Yuichiro
  9. When I was your age...Population Dynamics and Household Energy Consumption By Rossella Bardazzi; Maria Grazia Pazienza
  10. Consumer Protection and the Design of the Default Option of a Pan-European Pension Product By Andrea Berardi; Claudio Tebaldi; Fabio Trojani
  11. Does Consumption Decrease After Retirement, and for Whom? By Kimhi, Ayal; Sender, Maya
  12. Sons or Daughters? The Impact of Children's Migration on the Health and Well-Being of Parents Left Behind By Wahba, Jackline; Wang, Chuhong
  13. Impact of Increased Long-Term Care Insurance Payments on Employment and Wages in Formal Long-Term Care By Kondo, Ayako
  14. The Implications of Social Security’s “Missing Trust Fund” By Alicia H. Munnell; Wenliang Hou; Geoffrey T. Sanzenbacher
  15. Hearing the Voice of the Future: Trump vs Clinton By NARITA Yusuke

  1. By: Miguel Sánchez-Romero; Ronald D. Lee; Alexia Prskawetz
    Abstract: We propose a general analytical framework to model the redistributive features of alternative pension systems when individuals face ex ante differences in mortality. Differences in life expectancy between high and low socioeconomic groups are often large and have widened recently in many countries. Such longevity gaps affect the actuarial fairness and progressivity of public pension systems. However, behavioral responses to longevity and policy complicate analysis of possible reforms. Here we consider how various pension systems would perform in a general equilibrium OLG setting with heterogeneous longevity and ability. We evaluate redistributive effects of three Notional Defined Contribution plans and three Defined Benefit plans, calibrated on the US case. Compared to a benchmark non-redistributive plan that accounts for differences in mortality, US Social Security reduces regressivity from longevity differences, but would require group-specific life tables to achieve progressivity. Moreover, without separate life tables, despite apparent accounting gains, lower income groups would suffer welfare losses and higher income groups would enjoy welfare gains through indirect effects of pension systems on labor supply.
    JEL: H55 J1 J11 J14 J18 J26
    Date: 2019–06
  2. By: Nikolov, Plamen; Adelman, Alan
    Abstract: Aging populations in developing countries have spurred the introduction of public pension programs to preserve the standard of living for the elderly. The often-overlooked mechanism of intergenerational transfers, however, can dampen these intended policy effects, as adult children who make income contributions to their parents could adjust their behavior in response to changes in their parents’ income. Exploiting a unique policy intervention in China, we examine using a difference-in-difference-in-differences (DDD) approach how a new pension program impacts inter vivos transfers. We show that pension benefits lower the propensity of adult children to transfer income to elderly parents in the context of a large middle-income country, and we also estimate a small crowd-out effect. Taken together, these estimates fit the pattern of previous research in high-income countries, although our estimates of the crowd-out effect are significantly smaller than previous studies in both middle- and high-income countries.
    Keywords: life cycle, retirement, pension, inter vivos transfers, middle-income countries, developing countries, China, crowd-out effect, aging
    JEL: D64 H3 H55 J1 J14 J22 J26 O1 O12 O15 O16 R2
    Date: 2019–04–20
  3. By: Epstein, Gil S. (Bar-Ilan University); Katav-Herz, Shirit (Academic College of Tel-Aviv Yaffo)
    Abstract: Population ageing affects most countries, especially developed ones. The elderly have increased in number as a result of increased longevity and a parallel decline in fertility. This phenomenon is placing an increasing burden on the young to finance intergenerational transfers to the old, which is creating a threat to the stability of the pension system and the long-run viability of society as a whole. One possible solution is to permit more immigration, which will both increase the labor force and broaden the tax base. Increasing immigration has a variety of effects on the local population, which vary according to age and wealth. One of these is the threat to local social norms and culture since immigrants tend to maintain the culture of their country of origin. This effect increases with the number of immigrants and reduces the attractiveness of immigration as a solution to population ageing. This paper examines immigration as a solution to the problem of ageing population, while considering the implication of immigration on social norms.
    Keywords: immigration, social norms, population ageing, intergenerational transfers, attitude toward immigrants
    JEL: J11 J15 J61
    Date: 2019–05
  4. By: Barbiellini Amidei, Federico; Gomellini, Matteo; Piselli, Paolo
    Abstract: A few studies lately explored the relationship between changes in the demographic structure and inflation using mainly cross-country analyses. In this paper we investigate how the evolution in the age structure of the population affected price dynamics in Italy, using annual data for a panel of provinces in the period 1982-2016. The within-country approach allows us to wipe out the effects of supranational shocks, as well as to better take into account the effects of monetary policy, main common driver of price dynamics over the medium-term. We use a set of indicators, namely young age, old age and overall dependency ratios, and the share of working age population. Our results suggest that the ongoing ageing process likely contributed to dampening price dynamics.
    Keywords: Demographic change, price dynamics, panel cointegration
    JEL: E31 J11
    Date: 2019–02
  5. By: Murray, Tim
    Abstract: While housing equity accounts for a large portion of many retiree’s savings portfolios, they are not using their equity to increase consumption in retirement as suggested by the Life-Cycle Hypothesis. Defined benefit plans provide a guaranteed source of income in retirement where the household bears no risk, whereas households with a defined contribution plan are subject to potential risk depending on their asset allocation. This paper examines whether having a defined benefit plan mitigated some of the effects of the Great Recession. Using a difference-in-difference analysis, I examine the impact of the Great Recession on homeownership between households with a defined benefit plan compared to those with a defined contribution plan. I find that households with a defined contribution plan were 2.1-2.9 percent less likely to own a home after the Great Recession compared to households with a defined contribution plan. It is possible that households with defined contribution plans were willing to forgo homeownership to offset some of the losses experienced from the Great Recession. Future retirees face a potentially riskier housing market and are less likely to have a defined benefit plan. As a result, future retirees may be more willing to use their housing equity to increase consumption in retirement than was observed in past generations.
    Keywords: Great Recession, Housing Equity, Retirement, Pension
    JEL: D14 J14 J32
    Date: 2019–06–13
  6. By: Murray, Tim
    Abstract: Many retirees retain housing equity and do not utilize it to help finance spending on consumption. In this paper, I examine how older Americans (age 55+) may engage in precautionary savings where households would sell their house in the event they face an increase in out-of-pocket medical expenses due to a health shock. Using a counterfactual experiment, I find that older households are 13-percentage points less likely to own a home in their late retirement years when they know they will not have any out-of-pocket medical expenses. This indicates that many older households prefer not to own a home but choose to do so knowing they may get sick and thus are engaging in precautionary savings using their house. I conduct a policy experiment to examine how an insurance policy that would cover all out-of-pocket medical expenses would impact home ownership. I find that when an insurance policy of this nature is offered that costs four percent of income, the baseline economy has the same homeownership and moving rates as the counterfactual experiment where households do not have to pay for out-of-pocket medical expenses. This suggests that if seniors had more adequate health care coverage, they would be more willing to use the equity in their house to increase consumption in retirement.
    Keywords: housing, equity, precautionary savings, Medicare, insurance
    JEL: D14 E13 E21 R21 R31
    Date: 2019–06–13
  7. By: Alicia H. Munnell; Wenliang Hou; Geoffrey T. Sanzenbacher
    Abstract: In the past, it made sense to think of women’s retirement risk mainly in the context of households, as women spent the vast majority of their lives married. Today, though, women spend more time single than they used to – for example, women approaching retirement will spend just about half their adult lives married. Therefore, thinking about the differential risk that women face based on their marital histories is more important than ever. This brief uses the National Retirement Risk Index (NRRI) to assess the retirement security of women in their 50s. The NRRI is calculated by comparing households’ projected replacement rates – retirement income as a percentage of pre-retirement income – with target replacement rates that would allow them to maintain their standard of living. These calculations are based on the Federal Reserve’s Survey of Consumer Finances, a triennial survey of a nationally representative sample of U.S. households. As of 2016, the NRRI showed that half of households were at risk of falling short in retirement, even if they worked to age 65 and annuitized all their financial assets (including the receipts from reverse mortgages on their homes). The discussion proceeds as follows. The first section briefly summarizes the construction of the NRRI. The second section describes the increasing independence of women and how this trend would be expected to impact their financial security in retirement. The third section reports the NRRI for women with different marital histories, showing the surprising result that two-earner married couples are most at risk and then explaining this counter-intuitive finding. The final section concludes that two-earner married couples could benefit from more education and broader access to workplace retirement plans. For single women, the findings highlight the value of Social Security in boosting the retirement resources of those with lower incomes.
    Date: 2019–06
  8. By: FUJIWARA Ippei; HORI Shunsuke; WAKI Yuichiro
    Abstract: How does a grayer society affect the political decision making regarding inflation rates? Is deflation preferred as society ages? In order to answer these questions, we compute the optimal inflation rates for the young and the old respectively and explore how they change with demographic factors, by using a New Keynesian model with overlapping generations. According to our simulation results, there indeed exists a tension between the young and the old on the optimal inflation rates. The optimal inflation rates are different between the young and the old. Also, they can be significantly different from zero, in particular, when heterogeneous impacts from inflation via nominal asset holdings are considered. The optimal inflation rates for the old can be largely negative, reflecting their positive nominal asset holdings as well as lower effective discount factor. Societal aging may exert downward pressure on inflation rates through a politico-economic mechanism.
    Date: 2019–03
  9. By: Rossella Bardazzi; Maria Grazia Pazienza
    Abstract: Generational values inspire behaviour in numerous areas such as politics, labour markets, social cohesion, consumption and energy use. Stephenson et al. (2015) highlight the role of so-called energy culture in shaping the behaviour of different population cohorts regarding energy consumption and environmental protection, and empirical studies have confirmed the relevance of cohort effects in residential and transport-related energy use (Bardazzi and Pazienza, 2017; Chancel, 2014). This paper aims to assess how ageing and evolving generational energy cultures in Italy affect the future path of energy consumption, considering the expected changes in the Italian population size, composition and location. We use a pseudo-panel of Italian households to estimate cohort and age effects by macro-area and then we combine these effects with official demographic projections to forecast the potential consequences for energy consumption up to 2050. Our findings show that age and generation are key determinants of household behaviour regarding residential energy consumption and these effects interplay with future population dynamics, which are also area-specific due to internal migration.
    Keywords: Household energy demand, Pseudo-panel, Population age structure, Cohort effects
    JEL: D12 Q4 J11 Q56
    Date: 2019
  10. By: Andrea Berardi (Ca Foscari University of Venice - Dipartimento di Economia); Claudio Tebaldi (Bocconi University - CAREFIN - Centre for Applied Research in Finance; Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research); Fabio Trojani (Swiss Finance Institute; University of Geneva)
    Abstract: We address potential strengths and weaknesses of alternative protection schemes, which can be adopted as a ‘default option’ in a private, third pillar, pension product. In light of the observed behavior of savers adopting the ‘default option’ at international level, we perform a comparative analysis aimed at quantifying the costs and the benefits of two different risk mitigation techniques and market-standard investment products available to European consumers. We make the case for eligibility of life-cycle target-date funds as default option for the pan-European pension products.
    Keywords: Life-Cycle Saving, Household Finance, Guaranteed Strategies
    JEL: G11 D14 D91
    Date: 2019–03
  11. By: Kimhi, Ayal; Sender, Maya
    Abstract: This paper examines the decline in consumption after retirement by quantiles of the consumption distribution, by gender, by pre‐retirement employment status and by age. The retirement‐induced decline in consumption is larger among those who were employees than among those who were self‐employed, but only for males. In contrast, those who did not work do not experience a decline in consumption when they cross the official retirement age, and in some cases their consumption actually increases. Without allowing for age‐specific effects, it was found that the decline in consumption is largest in the middle of the consumption distribution, while after allowing the decline in consumption to depend on age, it was found that the decline is largest at lower levels of consumption and becomes more moderate as the person climbs along the consumption distribution. These results are consistent with the hypothesis that inadequate savings are a major reason for the decline in consumption after retirement.
    Keywords: Food Consumption/Nutrition/Food Safety, Labor and Human Capital
    Date: 2018
  12. By: Wahba, Jackline (University of Southampton); Wang, Chuhong (University of Southampton)
    Abstract: We study the impact of adult children's internal migration on the health and subjective well-being of elderly parents left behind, distinguishing between the gender of the migrant children. To overcome migration endogeneity, we exploit novel and exogenous variation in children's astrological characteristics and apply instrumental variables methods. We find a positive effect of the migration of daughters on parents' health and life satisfaction, but no such beneficial effects when sons migrate. We further explore the mechanism through which this gender-biased migration effect may arise. Our findings have important implications for regions and countries that have high rates of female emigration.
    Keywords: migration, health, subjective well-being, gender, Chinese zodiac signs
    JEL: O15 I12 J14 J16 R23
    Date: 2019–05
  13. By: Kondo, Ayako (University of Tokyo)
    Abstract: This paper examines the effect of raising Long-term Care Insurance (LTCI) payments on employment and wages of workers in the long-term care (LTC) industry. Specifically, I use the change in the regional premium in 2012 as an exogenous shock to the insurance fee schedule: the change in the unit price of LTCI service ranges from a decrease of 2.8% to an increase of 4.2%. I find no increase in the number of employees in the establishments, registered under the LTCI scheme, in municipalities where the regional premium increased. The earnings and working hours of LTC workers did not increase, either.
    Keywords: long-term care insurance, care workers
    JEL: I11 J30 J48
    Date: 2019–05
  14. By: Alicia H. Munnell; Wenliang Hou; Geoffrey T. Sanzenbacher
    Abstract: As policymakers consider restoring financial balance to Social Security, understanding the reason for the shortfall is important. If the cost of currently scheduled benefits simply exceeds what today’s workers are paying into the system, the traditional proposals to reduce benefits or raise payroll taxes would be most relevant. However, the cause of the shortfall lies elsewhere. Specifically, the program’s “pay-as-you-go” approach – with the exception of the recent build-up and spend-down of a modest trust fund in anticipation of the baby boom – makes the program expensive. This financing approach is the result of a policy decision in the late 1930s to pay benefits far in excess of contributions for the early cohorts of workers. The decision essentially gave away the trust fund that would have accumulated and, importantly, gave away the interest on those contributions. This brief, based on a recent paper, explores the implications of the “Missing Trust Fund.” The discussion proceeds as follows. The first section discusses the origin of the Missing Trust Fund and its cost implications for current workers. The second section discusses how the Missing Trust Fund relates to Social Security’s Legacy Debt and the pattern of net transfers over the generations. The third section lays out alternative paths forward – funding vs. pay-as-you-go and payroll taxes vs. income taxes. The final section highlights three implications. First, Social Security costs are high, not because the program is particularly generous, but because the trust fund is missing. Second, the beneficiaries of the trust fund giveaway were early generations; in contrast, the much-maligned baby boomers are scheduled to pay for their full benefits. Finally, if policymakers choose to maintain Social Security benefits at current-law levels, little rationale exists for placing the entire burden of the Missing Trust Fund on today’s workers through higher payroll taxes; that component could be financed more equitably through the income tax.
    Date: 2019–06
  15. By: NARITA Yusuke
    Abstract: Many countries face growing concerns that population aging may make voting and policy-making myopic. This concern begs for electoral reform to better reflect voices of the youth, such as weighting votes by voters' life expectancy. This paper predicts the effect of the counterfactual electoral reform on the 2016 U.S. presidential election. Using the American National Election Studies (ANES) data, I find that Hillary Clinton would have won the election if votes were weighted by life expectancy. I also discuss limitations due to data issues.
    Date: 2019–03

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