nep-age New Economics Papers
on Economics of Ageing
Issue of 2019‒11‒25
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Fair long-term care insurance By LEROUX Marie-Louise,; PESTIEAU Pierre,; PONTHIERE Gregory,
  2. How Reliant are Older Americans on State and Local Government Pensions? By Philip Armour; Michael D. Hurd; Susann Rohwedder
  3. The Mental Health Effects of Retirement By Jan van Ours; Matteo Picchio
  4. National Pension Policy and Globalization: A New Approach to Strive for Efficient Portability and Equitable Taxation By Bernd Genser; Robert Holzmann
  5. Household Debt and Aging in Japan By Yuji Horioka, Charles; Niimi, Yoko
  6. How Would 401(k) ‘Rothification’ Alter Saving, Retirement Security, and Inequality? By Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
  7. Heterogeneous Effect of a Non-contributory Pension. Evidence from Bolivia By Miguel Angel Borrella-Mas; Mariano Bosch; Marcello Sartarelli
  8. Insight into Stagnating Life Expectancy: Analysing Cause of Death Patterns across Socio-economic Groups By Malene Kallestrup-Lamb; Søren Kjærgaard; Carsten P. T. Rosenskjold
  9. Latent Work Capacity and Retirement Expectations By Italo Lopez Garcia; Nicole Maestas; Kathleen J. Mullen

  1. By: LEROUX Marie-Louise, (UQAM); PESTIEAU Pierre, (Université de Liège); PONTHIERE Gregory, (Université Paris Est)
    Abstract: The study of the 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 H55
    Date: 2019–03–06
  2. By: Philip Armour (RAND Corporation); Michael D. Hurd (RAND Corporation); Susann Rohwedder (RAND Corporation)
    Abstract: State and local government pension plans cover about 19.5 million participants, and many participants are heavily reliant on these pensions for retirement income. Most of these plans, however, are underfunded. Based on data from the Health and Retirement Study, we examined the lifetime work histories of those observed at ages 67 to 72 in 2004, 2008, or 2014. Seventy-seven percent of single persons and 61 percent of couple households had never worked for state or local (S&L) government. Among those single and couple households who did work for S&L government, we found that they have on average more years of education and more economic resources. Among currently retired and near-retirement households, we compared economic preparation for retirement according to their lifetime employment in the S&L sector, and we examined how economic preparation would be affected if pension benefits were cut. Based on stochastic simulations, which account for uncertainty about length of life and out-of-pocket medical expenditures, we found that economic preparation for retirement among those with S&L government work histories would only be modestly reduced if their pension income were cut. Under a 50 percent cut to all pension income of households with any S&L sector work, only an additional three to four percent of these households would no longer be prepared for retirement. The change is modest because households with S&L employment have better preparation than other households; some of the cuts are paid for by reduced taxes; and the affected households will bequeath less.
    Date: 2019–09
  3. By: Jan van Ours (Erasmus University Rotterdam); Matteo Picchio (March Polytechnic University)
    Abstract: We study the retirement effects on mental health using a fuzzy regression discontinuity design based on the eligibility age to the state pension in the Netherlands. We find that the mental effects are heterogeneous by gender and marital status. Retirement of partnered men positively affects mental health of both themselves and their partners. Single men retiring experience a drop in mental health. Female retirement has hardly any effect on their own mental health or the mental health of their partners. Part of the effects seem to be driven by loneliness after retirement.
    Keywords: Retirement, health, regression discontinuity design
    JEL: J26 H55 J14
    Date: 2019–11–19
  4. By: Bernd Genser (University of Konstanz (retired), Konstanz, Germany); Robert Holzmann (Austrian National Bank (governor) and Austrian Academy of Sciences, Vienna, Austria)
    Abstract: As part of globalization, individuals increasingly spend part of their working or retirement life abroad and want to keep or move their acquired rights, accumulated retirement assets, or benefits in payment freely across borders. This raises the issue of the portability and taxation of cross-border pensions in accumulation and disbursement. This paper addresses both portability and taxation issues from the angle of which type of pension scheme – defined benefits (DB) or defined contributions (DC) – and which regime of cross border pension taxation is more aligned with globalization in establishing individual fairness, fiscal fairness, and bureaucratic efficiency. The paper summarizes the limited literature on portability and taxation of cross-border pensions and concludes that the current taxation approach is unsustainable in a global setting. We present a proposal to move from deferred toward front-loaded taxation of pensions and point at the gains in fairness for individuals and states and some other attractive features of this regime change with respect to taxation and portability.
    Keywords: portability of pensions, pension taxation, international taxation, international migration, model tax convention
    JEL: H55 H24 H87 F22
    Date: 2019–11–13
  5. By: Yuji Horioka, Charles; Niimi, Yoko
    Abstract: In this paper, we analyze the borrowing behavior of Japanese households in comparison to the other Group of Seven (G7) countries and also broken down by the age group of the household head. We find that pre-retirement households (households with a head in the 50-59 age group) in Japan do not have inordinate amounts of debt and that their financial health is satisfactory. However, we also find that households with a head in the 30-39 age group have shown a sharp increase in debt holdings in recent years, due partly to the fact that tax breaks for housing purchase, reforms in the housing loan market since the early 2000s, and expansionary monetary policy enabled Japanese households to purchase housing at a younger age than they could previously. We therefore need to monitor the borrowing behavior of this cohort over time as the Bank of Japan normalizes its monetary policy, especially since households have become more vulnerable to rising interest rates as the share of households who have chosen variablerate housing loans has increased in recent years.
    Keywords: aging, borrowing, debt, homeownership, households, housing, Japan, liabilities, loans, mortgages, retirement, D14, E21, G51, J14, R21
    Date: 2019–11
  6. By: Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
    Abstract: The US has long incentivized retirement saving in 401(k) and similar retirement accounts by permitting workers to defer taxes on contributions, levying them instead when retirees withdraw funds in retirement. This paper develops a dynamic life cycle model to show how and whether ‘Rothification’ – that is, taxing 401(k) contributions rather than payouts – would alter household saving, investment, and Social Security claiming patterns. We show that these changes differ importantly for low- versus higher-paid workers. We conclude that moving to a system that taxes pension contributions instead of withdrawals will lead to later retirement ages, particularly for the better-educated. It also would reduce work hours and lifetime tax payments and increase wealth and consumption inequality. In addition, we show how these behaviors would differ in a persistently low interest rate environment versus a more “normal” historical return world.
    JEL: D14 D91 G11 G22 G23 G28
    Date: 2019–11
  7. By: Miguel Angel Borrella-Mas (Universidad de Navarra.); Mariano Bosch (Inter-American Development Bank.); Marcello Sartarelli (Universidad Complutense de Madrid and ICAE.)
    Abstract: We test whether eligibility for the Renta Dignidad social pen- sion mitigates old-age poverty and induces (in)direct behavioural responses by using a regression discontinuity design as the age cut- off determining eligibility is set at 60. We find that, first, neither poverty nor consumption or labour supply are affected by spouses’ eligibility and, second, the probability of co-residing grandchildren in households with both spouses eligible is higher. We contribute to the literature by showing how the role of gender in decisions with an intergenerational component can help rationalising apparent limita- tions of the pension in fighting poverty in the short-run.
    Keywords: Consumption; Gender; Household composition; Labour supply; Poverty; Regression discontinuity; Renta Dignidad; Social pension.
    JEL: D13 H2 J22 J26
    Date: 2019–11
  8. By: Malene Kallestrup-Lamb (Aarhus University and CREATES); Søren Kjærgaard (University of Southern Denmark); Carsten P. T. Rosenskjold (Aarhus University and CREATES)
    Abstract: This article analyzes the complexity of female longevity improvements. As socio-economic status is found to influence health and mortality, we partition all individuals, at each age in every year, into five socio-economic groups based on an affluence measure that combine an individual’s income and wealth. We identify the particular socio-economic groups that have been driving the standstill for Danish females. Within each socio-economic group, we further analyze the cause of death patterns. The decline in life expectancy for Danish females is present for four out of five subgroups, however with particular large decreases for the low-middle and middle affluence groups. Cancers, smoking related causes, and other diseases particularly contribute to the stagnation. Moreover, cardiovascular and cerebrovascular diseases are found to be important for capturing the following catch-up in longevity.
    Keywords: Mortality, Affluence Groups, Health Inequality, Cause of Death
    JEL: J11 C53 G22
    Date: 2019–11–18
  9. By: Italo Lopez Garcia (RAND); Nicole Maestas (Harvard Medical School and NBER); Kathleen J. Mullen (RAND)
    Abstract: Understanding how health decline influences retirement decisions is fundamental for the design of targeted policies that encourage working longer. While there is wide agreement on the relevance of age-related health decline for determining labor supply and retirement decisions, the process of how health deterioration affects labor supply remains a black box. This paper explores the match between individuals’ functional abilities and job demands in the national economy using a new methodology to measure work capacity. Specifically, we construct a one-dimensional measure of individuals’ work capacities by comparing an individual’s own ability levels to the levels needed to perform different occupations, using new data containing individuals’ ratings of the same 52 abilities included in the Occupational Information Network (O*NET) database. We find that a one-unit increase in the fraction of jobs for a given education level that an individual can do — our measure of work capacity — is associated with a 15 to 21 percentage point increase in labor force participation, a 10 to 17 percentage point decrease in the percentage of respondents receiving SSDI benefits, a 7 to 10 percentage point increase in the subjective percent chance individuals will work longer, a 9 to 12 percentage point increase in the chance that retired individuals will return to the labor force, and a 17 to 25 percentage point increase in the chance that individuals with disabilities will return to the labor force. The magnitudes of these associations are all economically relevant and exist even when controlling for health status.
    Date: 2019–09

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