nep-age New Economics Papers
on Economics of Ageing
Issue of 2019‒07‒08
ten papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Fair long-term care insurance By Marie-Louise Leroux; Pierre Pestieau; Grégory Ponthiere
  2. Does the Early Retirement Policy Really Benefit Women? By Hyun Lee; Kai Zhao; Fei Zou
  3. Employment outcomes and policies in Sweden during recent decades By Forslund, Anders
  4. Effect of aging on housing prices: evidence from a panel data By Sun, Tianyu; Chand, Satish; Sharpe, Keiran
  5. The introduction of social pensions and elderly mortality: Evidence 1870-1939 By Jäger, Philipp
  6. El Sistema Pensional en Colombia By Martha López; Eduardo Sarmiento G.
  7. Implications of Increasing College Attainment for Aging in General Equilibrium By Juan Carlos Conesa; Timothy J. Kehoe; Vegard M. Nygaard; Gajendran Raveendranathan
  8. Demographic change and climate change By Michael Rauscher
  9. Household Financial Decisions After the 2008 Chilean Pension Reform By Alessandro Bucciol; Martina Manfre'; Gregorio Gimenez
  10. How Has the Decline in Assumed Returns Affected Plan Costs? By Jean-Pierre Aubry; Alicia H. Munnell; Kevin Wandrei

  1. By: Marie-Louise Leroux; Pierre Pestieau; Grégory Ponthiere
    Abstract: The study of optimal long-term care (LTC) social insurance is generally carried out under the utilitarian social criterion, which penalizes individuals who have a lower capacity to convert resources into well-being, such as dependent elderly individuals or prematurely dead individuals. This paper revisits the design of optimal LTC insurance while adopting the ex post egalitarian social criterion, which gives priority to the worst-off in realized terms (i.e. once the state of nature has been revealed). Using a lifecycle model with risk about the duration of life and risk about old-age dependence, it is shown that the optimal LTC social insurance is quite sensitive to the postulated social criterion. The optimal second-best social insurance under the ex post egalitarian criterion involves, in comparison to utilitarianism, higher LTC benefits, lower pension benefits, a higher tax rate on savings, as well as a lower tax rate on labor earnings.
    Keywords: long-term care, social insurance, fairness, mortality, compensation, egalitarianism
    JEL: J14 I31 H55
    Date: 2019
  2. By: Hyun Lee (University of Connecticut); Kai Zhao (University of Connecticut); Fei Zou (University of Connecticut)
    Abstract: China’s mandatory retirement policy requires most female workers to retire five years earlier than their male counterparts. The conventional wisdom behind this policy is that it benefits women by relieving them from work earlier and providing them with more years of public pension benefits than men. However, is the early retirement policy really welfare-improving for women? In this paper, we quantitatively evaluate the welfare consequence of China’s gender-specific mandatory retirement policy using a calibrated Overlapping-Generation model with heterogeneous agents and incomplete markets. We find that the early mandatory retirement reduces welfare for women. An important reason behind this welfare result is that China’s public pension benefits are only partially indexed to growth, and therefore women who retire earlier also benefit less from economic growth than men. Our quantitative results suggest that equalizing the retirement age across gender can generate a welfare gain for both men and women.
    Keywords: Social Security, China, Mandatary Retirement, Gender
    JEL: E20 E60 H30
    Date: 2019–07
  3. By: Forslund, Anders (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: The Swedish employment rate is high in an international comparison and has been rising during recent decades. This pattern is especially pronounced among the elderly and women and reflects labour supply behaviour in these groups. The policy survey in this report suggests that the main drivers of the high and rising Swedish employment rates can be found in policies for early retirement, old-age pensions and taxes and benefits.
    Keywords: Employment; Labour supply; Labour demand; Employment policies
    JEL: H30 H40 H53 H55 I28 J20
    Date: 2019–06–14
  4. By: Sun, Tianyu; Chand, Satish; Sharpe, Keiran
    Abstract: We empirically test the effect of ageing on housing prices. Our analysis shows that a decline in the fertility rate and an increase in longevity – the two main causes of an ageing population – have divergent effects on housing prices. This empirical finding helps us to reconcile a conflict which has lasted for 30 years in literature. We show that a decline in the fertility rate generally lowers housing prices because there are fewer workers in the population. At the same time, the workers and retirees react differently towards the impact of longer lifespans. In particular, the workers are urged to purchase more houses as a form of of saving and thus raise the prices, while the retirees tend to sell a greater fraction of the housing for extra funding. The conclusions correspond well with the Life Cycle Hypothesis and are drawn by using a semi-parametric method on an international panel data.
    Keywords: Ageing, Fertility, Longevity, Housing prices, Semi-parametric analysis
    JEL: C14 E31 J11 R21
    Date: 2018–11–01
  5. By: Jäger, Philipp
    Abstract: The strong association between income and mortality raises the question whether more generous social security systems could improve poor people's health outcomes. Thus, in this paper, I analyze whether a major social security innovation, the introduction of social pensions targeted at poor elderly people in the late 19th-early 20th century, has reduced mortality rates of senior citizens. Therefore, I use a cross-country dataset spanning from 1870 to 1939 consisting of 13 countries of which 9 eventually implemented social pensions before World War II. Applying a difference-in-difference-in-difference as well as a regression discontinuity design, I find no evidence for a decline in elderly mortality due to the introduction of social pensions. Based on aggregate census data, I argue that social pensions have reduced elderly labor supply. The reduction is much smaller than social pension recipiency rates, though. These findings suggest that social pensions have raised elderly incomes which, however, did not translate into lower mortality.
    Keywords: pension,social security,elderly mortality
    JEL: H55 I18
    Date: 2019
  6. By: Martha López (Banco de la República de Colombia); Eduardo Sarmiento G. (Escuela Colombiana de Ingeniería)
    Abstract: En el documento se describe el sistema pensional colombiano. Luego de la reforma de la Ley 100 mejoraron las afiliaciones, lo cual implica un aumento también de las cotizaciones y la cobertura de los pensionados en el futuro. En la actualidad la cobertura de las pensiones es apenas 23% y menos de 1,5 millones de personas. Esto se debe, en parte, a la existencia de un mercado laboral con un sector informal amplio (47,3%). Las mayores tasas de reemplazo del sistema público con respecto al privado ocasionan traslados del segundo al primero, lo que pone más presión en las finanzas públicas. Por lo anterior, se propone establecer un sistema de 3 pilares vigente en otros países como Chile. Actualmente, por nivel de ingreso, cerca de 80% de los cotizantes corresponde a personas con menos de 2 SMMLV; sin embargo, un alto monto de los subsidios del RPM se destina a la población con mayores ingresos. El gasto en transferencias con cargo a la Nación fue de 3,4% del PIB y el pasivo pensional fue cercano al 130% del PIB. Teniendo en cuenta las anteriores consideraciones, en este documento se plantea la necesidad de una reforma pensional que mejore la cobertura, aumente las transferencias a la población más pobre y no incremente los requerimientos de presupuesto de la Nación. **** ABSTRACT: The document describes the Colombian pension system. After the reforms of the Law 100, affiliations improved which also implies an increase of the contributions and the coverage of the pensioners in the future. At present, the coverage of pensions is only 23% and less than 1,5 million people. This is partly due to the existence of a labor market with a broad informal sector (47,3%). The public system has higher replacement rates than the private one causing transfers from the second to the first, which puts more pressure on public finances. Therefore, this document proposes to establish a 3 pillars scheme that exists in other countries like Chile. Currently, by level of income, about 80% of contributors correspond to people who earn less than 2 SMMLV, but substantial RPM subsidies goes to the population with the highest income. Pension transfers in charge of the Nation were 3,4% of GDP and pension liabilities were close to 130% of GDP. Taking into account the above considerations, this document raises the need for a pension reform that improves coverage, increases transfers to the poorest population and does not increase the Nation's budget requirements.
    Keywords: Pensiones, cobertura, finanzas públicas, tasa de reemplazo
    JEL: E21 G23 H55 H62 H68 I31
    Date: 2019–06
  7. By: Juan Carlos Conesa; Timothy J. Kehoe; Vegard M. Nygaard; Gajendran Raveendranathan
    Abstract: We develop and calibrate an overlapping generations general equilibrium model of the U.S. economy with heterogeneous consumers who face idiosyncratic earnings and health risk to study the implications of exogenous trends in increasing college attainment, decreasing fertility, and increasing longevity between 2005 and 2100. While all three trends contribute to a higher old age dependency ratio, increasing college attainment has different macroeconomic implications because it increases labor productivity. Decreasing fertility and increasing longevity require the government to increase the average labor tax rate from 32.0 to 44.4 percent. Increasing college attainment lowers the required tax increase by 10.1 percentage points. The required tax increase is higher under general equilibrium than in a small open economy with a constant interest rate because the reduction in the interest rate lowers capital income tax revenues.
    Keywords: college attainment, aging, health care, taxation, general equilibrium
    JEL: H20 H51 H55 I13 J11
    Date: 2019–06
  8. By: Michael Rauscher
    Abstract: The paper uses a continuous-time overlapping-generations model with endogenous growth and pollution accumulation over time to study the link between longevity and global warming. It is seen that increasing longevity accelerates climate change in a business-as-usual scenario without climate policy. If a binding emission target is set exogenously and implemented via a cap-and-trade system, the price of emission permits is increasing in longevity. Longevity has no effect on the optimal solution of the climate problem if perfect intergenerational transfers are feasible. If these transfers are absent, the impact of longevity is ambiguous.
    JEL: Q56 O44 O41 J11 J19
    Date: 2019
  9. By: Alessandro Bucciol (Department of Economics (University of Verona)); Martina Manfre' (Department of Economics (University of Verona)); Gregorio Gimenez (University of Zaragoza)
    Abstract: We evaluate the effect of the 2008 Chilean pension reform, that introduced a basic pension to the poorest part of the elder population, in terms of decisions regarding debts and assets. We apply a difference-in-difference estimation method to longitudinal survey data representative of the Chilean population. Our evidence suggests that those who started receiving basic pension increased their holding and amount of debt. It may be that some people used the basic pension as a collateral for acquiring more debt, rather than using it as a way to finance new investments. The increase in debt positions is proportionally higher when compared to the variation in asset positions. We interpret this measure as an indicator of debt sustainability. Moreover, debt ratio increases significantly more for women, who may be particularly exposed to financial shocks. This result raises concern on the potential financial vulnerability of the population that was targeted by the reform.
    Keywords: Chile, Pension, Financial vulnerability, Gender vulnerability, Difference-in-difference
    JEL: I38 D14
    Date: 2019–06
  10. By: Jean-Pierre Aubry; Alicia H. Munnell; Kevin Wandrei
    Abstract: Many state and local pension plans have lowered their long-term investment return assumptions in the wake of the financial crisis. Such a change is generally viewed as a positive development for pension funding discipline, bringing assumptions more in line with market expectations and forcing plan sponsors to increase annual required contributions. In this case, however, the decline is actually due to lower assumed inflation, not a lower real return (that is, the return net of inflation). In a fully-indexed system where benefits fully adjust with inflation, a lower inflation assumption should actually have no impact on costs. At the same time, plans have changed their asset allocation, resulting in a higher expected real return, which – all else equal – lowers costs. Therefore, a quick assessment of these underlying assumption changes suggests that plans may have actually lowered their costs with the decline in the assumed return. But, public plan benefits are not fully indexed, so the real value of benefits increases as the inflation expectation drops, which increases plan costs. This brief explains the overall impact of these opposing dynamics and compares the net effect on costs with that produced by a lower real return assumption. The brief proceeds as follows. The first section documents the impact of declining inflation on assumed returns and explains why lower inflation has no impact on costs if benefits are fully linked to inflation. The second section shows that public plan benefits are not fully linked to inflation, so that a lower inflation assumption leads to higher real benefits and plan costs. The third section describes the increase in plans’ expected real rate of return, which lowers costs. The fourth section puts the pieces together – finding that plan costs have increased because the lack of full indexing dwarfs the impact of the higher real return. The increase, however, is substantially less than if plans had lowered their real return assumption. The final section concludes that it is important to identify the source of a decline in assumed returns because lower inflation and lower real returns have different effects on costs.
    Date: 2019–06

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