nep-age New Economics Papers
on Economics of Ageing
Issue of 2020‒04‒20
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Rising longevity, increasing the retirement age, and the consequences for knowledge-based long-run growth By Kuhn, Michael; Prettner, Klaus
  2. Is a reference age necessary in a points pension system? By Antoine Bozio; Simon Rabaté; Audrey Rain; Maxime Tô
  3. Measuring intra-generational redistribution in PAYG pension schemes By Klos, Jonas; Krieger, Tim; Stöwhase, Sven
  4. Pensions and Fertility: Micro-Economic Evidence By Alexander M. Danzer; Lennard Zyska
  5. The Wealth Decumulation Behavior of the Retired Elderly in Italy: The Importance of Bequest Motives and Precautionary Saving By Ventura, Luigi; Yuji Horioka, Charles
  6. The Murder-Suicide of the Rentier: Population Aging and the Risk Premium By Joseph Kopecky; Alan M. Taylor
  7. The Political (In)Stability of Funded Pension Systems By Roel Beetsma; Oliwia Komada; Krzysztof Makarski; Joanna Tyrowicz
  8. Pension Reform in the Netherlands By Westerhout, Ed
  9. Does the Selfish Life-Cycle Model Apply in the Case of Japan? By Charles Yuji Horioka
  10. Elderly Care Supply Systems and Services which Decrease Elderly Care Requirements By OGURO Kazumasa; ISHIDA Ryo; YASUOKA Masaya
  11. How should a points pension system be managed? By Antoine Bozio; Simon Rabaté; Audrey Rain; Maxime Tô
  12. Health Risk and the Welfare Effects of Social Security By Shantanu Bagchi; Juergen Jung
  13. Pensions reform: what redistributive effects are expected? By Antoine Bozio; Chloé Lallemand; Simon Rabaté; Audrey Rain
  14. Asymptotically Optimal Management of Heterogeneous Collectivised Investment Funds By John Armstrong; Cristin Buescu
  15. The retirement migration puzzle in China By Chen, Simiao; Jin, Zhangfeng; Prettner, Klaus
  16. Barriers to Public Pension Program Participation in a Developing Country By Tomoaki Tanaka; Junichi Yamasaki; Yasuyuki Sawada; Khaliun Dovchinsuren

  1. By: Kuhn, Michael; Prettner, Klaus
    Abstract: We assess the long-run growth effects of rising longevity and increasing the retirement age when growth is driven by purposeful research and development. In contrast to economies in which growth depends on learning-by-doing spillovers, raising the retirement age fosters economic growth. How economic growth changes in response to rising life expectancy depends on the retirement response. Employing numerical analysis we find that the requirement for experiencing a growth stimulus from rising longevity is fulfilled for the United States, nearly met for the average OECD economy, but missed by the EU and by Japan.
    Keywords: Demographic Change,Rising Life Expectancy,Pension Reforms,Long-Run Economic Growth,R&D,Innovation
    JEL: J10 J26 O30 O41
    Date: 2020
  2. By: Antoine Bozio (IPP - Institut des politiques publiques, PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Simon Rabaté (IPP - Institut des politiques publiques); Audrey Rain (IPP - Institut des politiques publiques); Maxime Tô (IPP - Institut des politiques publiques, UCL - University College of London [London], Institute for Fiscal Studies)
    Abstract: An important feature in the debate on French pensions reform is whether or not it is necessary to keep a reference retirement age in the new system. This brief aims to contribute to the debate by clarifying certain ambiguities about the concept of retirement age and by discussing the potential implications of implementing a points system. We stress the difference between the impact of reference ages in the current system – those ages changing the pension scale of the system – and implementing reference points in the new system, such points playing a useful part in informing the future pensioners. Recent economic literature has highlighted the part played by reference points in pension scales, beyond providing purely financial incentives. This would argue in favour of the new system keeping a target to which the future pensioners can refer. Rather than a single pivotal age for everyone, this brief advocates introducing a reference norm that is defined by obtaining a target replacement rate, e.g. 75 % of the last salary before retirement. Such a reference would lead to dening an individual full-pension age, adapted to each career. This would also be a return to the initial goal of a pension system, namely to maintain standard of living on retirement. Such an age reference could also be accompanied by new services for helping future pensioners prepare their retirement choices better..
    Date: 2019–06
  3. By: Klos, Jonas; Krieger, Tim; Stöwhase, Sven
    Abstract: In this paper, we propose a novel index for measuring intra-generational redistribution in pay-as-you-go pension schemes. Our index solely requires information on contributions and pension benefits of retirees, enabling us to measure intra-generational redistribution isolated from possible inter-generational redistribution. We use contribution records of approx. 100,000 German individuals, who progressed into retirement in 2007-2015, to measure the level of intra-generational redistribution in the German statutory pension scheme (GRV). A recent reform of childcare benefit provision, which became effective in 2014, confirms the predictions of our index. The reform introduced additional benefits for a subgroup of substantial size of German mothers, due to which the index value for women, but not for men jumps up. Our findings suggests that GRV fulfils the ideal of a Bismarckian pension system without intra-generational redistribution for men, while women benefit from intra-generational redistribution.
    Keywords: PAYG pension systems,intra-generational redistribution,Beveridge vs. Bismarck,index,microdata,Germany
    JEL: H55 D31 C55
    Date: 2020
  4. By: Alexander M. Danzer; Lennard Zyska
    Abstract: This study identifies the causal effect of pension generosity on women’s fertility behavior. It capitalizes on Brazil’s expansion of the pension system to rural workers, whose pension wealth subsequently more than tripled. Event study, difference-in-differences and instrumental variable methods show that the pension reform reduces the propensity of childbearing of women in fertile age by 10% in the short-run. Completed fertility declines by 1.3 children within 20 years after the reform, reducing the contribution base of the Pay-As-You-Go pension system in the long-run. The fertility response is strongest at higher birth parities, among older women and among mothers with sons.
    Keywords: pension wealth, fertility, old-age security hypothesis, quasi-experiment, PAYG, Brazil
    JEL: J13 I38 H55
    Date: 2020
  5. By: Ventura, Luigi; Yuji Horioka, Charles
    Abstract: In this paper, we analyze the wealth accumulation and saving behavior of the retired elderly in Italy using micro data from the “Survey of Italian Households' Income and Wealth,” a panel survey of households conducted every two years by the Bank of Italy. We find that, on average, the retired elderly in Italy are decumulating their wealth (dissaving) but that their wealth decumulation rates are much slower than expected.Moreover, we also find that more than 40 percent of the retired elderly in Italy are continuing to accumulate wealth and that more than 80 percent are doing positive amounts of saving. Thus, the Wealth Decumulation Puzzle (the tendency of the retired elderly to decumulate their wealth more slowly than expected) appears to apply in the case of Italy, as it does in most other countries, before as well as after the Global Financial Crisis.Moreover, our regression analysis of the determinants of the wealth accumulation and saving behavior of the retired elderly in Italy suggests that the lower than expected wealth decumulation rates and dissaving of the retired elderly in Italy is due largely to bequest motives and saving for precautionary purposes, especially the former.
    Keywords: Aged, bequests, bequest intentions, bequest motive, elderly, household saving, Italy, inheritances, intergenerational transfers, life cycle hypothesis, life cycle model, precautionary saving, retired elderly, saving, wealth, wealth accumulation, wealth decumulation, wealth decumulation puzzle, D12, D14, D15, D64, E21, J14
    Date: 2020–04
  6. By: Joseph Kopecky; Alan M. Taylor
    Abstract: Population aging has been linked to global declines in interest rates. A similar trend shows that equity risk premia are on the rise. An existing literature can explain part of the decline in the trend in safe rates using demographics, but has no mechanism to speak to trends in relative asset prices. We calibrate a heterogeneous agent life-cycle model with equity markets, showing that this demographic channel can simultaneously account for both the majority of a downward trend in the risk free rate, while also increasing premium attached to risky assets. This is because the life cycle savings dynamics that have been well documented exert less pressure on risky assets as older households shift away from risk. Under reasonable calibrations we find declines in the safe rate that are considerably larger than most existing estimates between the years 1990 and 2017. We are also able to account for most of the rise in the equity risk premium. Projecting forward to 2050 we show that persistent demographic forces will continue push the risk free rate further into negative territory, while the equity risk premium remains elevated.
    JEL: E21 E43 G11 J11
    Date: 2020–04
  7. By: Roel Beetsma; Oliwia Komada; Krzysztof Makarski; Joanna Tyrowicz
    Abstract: We analyze the political stability of capital funded social security. In particular, using a stylized theoretical framework we study the mechanisms behind governments capturing pension assets in order to lower current taxes. This is followed by an analysis of the analogous mechanisms in a fully-edged overlapping generations model with intra-cohort heterogeneity. Funding is efficient in a Kaldor-Hicks sense. Individuals vote on capturing the accumulated pension assets and replacing the funded pension pillar with a pay-as-you-go scheme. We show that even if capturing assets reduces welfare in the long run, it always has sufficient political support from those alive at the moment of the vote.
    Keywords: funded pensions, asset capture, majority voting, welfare
    JEL: H55 D72 E17 E27
    Date: 2020
  8. By: Westerhout, Ed (Tilburg University, Center For Economic Research)
    Abstract: During the last decade, the Dutch have debated intensively reforming their second-pillar pension scheme. Meanwhile, ten years turned out to be a too short period for pension funds to bring their funding ratios to sound levels, due to among others the worldwide decline of interest rates. Currently, the Dutch government and the social partners have come up with a quite concrete reform plan. The plan includes three main points: i) make the move towards actuarially fair pension accruals, ii) strengthen the link between benefit levels and capital market rates of return and iii) introduce the option to take up part of accrued pension wealth at retirement. This paper reviews and interprets the plan for pension reform.
    Keywords: Pension reform; uniformity pricing; funding ratio; interest rate; indexation
    JEL: H55 G29
    Date: 2020
  9. By: Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Osaka University, Asian Growth Research Institute, and National Bureau of Economic Research)
    Abstract: In this paper, we first provide a brief exposition of the simplest version of the selfish life cycle model or hypothesis, which is undoubtedly the most widely used theoretical model of household behavior in economics, and then survey the literature on household saving behavior in Japan (with emphasis on the author's own past research) to shed light on whether or not the selfish life-cycle model applies in the case of Japan. In particular, we survey the literature on the impact of the age structure of the population on the saving rate, the saving behavior of retired households, saving motives, the prevalence of bequests, bequest motives, tests of altruism, and the importance of borrowing (liquidity) constraints and show that almost all of the available evidence suggests that the selfish life-cycle model applies to a greater extent in Japan than it does in other countries. Finally, we discuss the policy implications of our findings.
    Keywords: Age structure of the population; Aged; Altruism; Bequests; Bequest motives; Borrowing constraints; Consumption; Dissaving; Elderly; Estates; Household behavior; Household saving; Households; Inheritances; Intergenerational transfers; Japan; Lifecycle hypothesis; Life-cycle model; Life-cycle theory; Liquidity constraints; Old age; Retirees; Saving; Saving motives; Selfishness
    JEL: D11 D12 D14 D64 E21 J14
    Date: 2020–03
  10. By: OGURO Kazumasa; ISHIDA Ryo; YASUOKA Masaya
    Abstract: In Japan, total elderly care costs continue to increase because of the aging of the population. An overall increase in elderly care costs will raise government expenditures because the elderly care system in Japan is financed mainly with public funds. To reduce elderly care costs, some services exist which reduce the need for elderly care services. For these analyses, we created a model with ordinary elderly care services and services which reduce the need for elderly care to ascertain how these services should best be supplies. The results are as follows: if these two services are provided by different service providers, the reduction in the necessary elderly care service is less than for the case in which that the service is provided by the same provider. Moreover, in order to minimize the total costs of elderly care provide by the government, our paper derives the appropriate remuneration for services that reduce the need for elderly care.
    Date: 2020–03
  11. By: Antoine Bozio (IPP - Institut des politiques publiques, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Simon Rabaté (IPP - Institut des politiques publiques, Centraal Planbureau); Audrey Rain (IPP - Institut des politiques publiques); Maxime Tô (IPP - Institut des politiques publiques, UCL - University College of London [London], Institute for Fiscal Studies)
    Abstract: A points system, operating at defined yield, makes it possible to rethink how pension systems are managed. Instead of having to make repeated ad hoc changes to the parameters of the system, it is possible to define change rules that other guarantees to future pensioners, as regards not only their entitlements but also the long-term sustainability of the system. In this brief, and based on simulations of a variety of shocks to the pension system, we study what management rules deserve to be chosen. Two rules absolutely must be selected: firstly the growth in the value of the pension point should match the growth in salaries; and secondly converting the points into pension should take into account the life expectancy of each generation (cohort). A third rule that is important for the long term, is the relationship between the rules for index-linking claimed pensions and the amounts of the pensions when they start being claimed. This rule should serve as a guide to managers so that they can steer the system towards an equilibrium that is not based on too low an index-linking of the pensions. Such management implies high institutional autonomy for the system, whereby the managers need to be accountable for the finnancial equilibrium and for the risks to pension revaluation.
    Date: 2019–06
  12. By: Shantanu Bagchi (Department of Economics, Towson University); Juergen Jung (Department of Economics, Towson University)
    Abstract: We examine the welfare effects of Social Security in a general equilibrium environment with realistic labor income, mortality, and health risks. We construct an overlapping generations model with rational-expectations households facing idiosyncratic health risk, profit maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) modifying the progressivity of the Social Security's benefit-earnings rule, and (ii) cutting Social Security's payroll tax. We find that both experiments have a larger effect on overall welfare in the presence of health risk, because health risk increases the importance of short-term consumption smoothing, both within work-life and retirement. Increased progressivity allows households to better smooth old-age consumption risk, and the payroll tax cut increases disposable income and allows better self-insurance against early-life health risk. We also find that labor supply is an important self-insurance tool in the presence of health risk, as increasing Social Security's progressivity has a smaller effect on overall welfare and cutting the payroll tax has a larger effect on overall welfare when labor supply is fixed. Finally, low-income households experience larger welfare gains both from increasing Social Security's progressivity and cutting the payroll tax, because of their relatively low ability to self-insure against health risk in general.
    Keywords: Health risk, Social Security, benefit-earnings rule, consumption smoothing, general equilibrium.
    JEL: E62 E21 H31 H55 I14
    Date: 2020–04
  13. By: Antoine Bozio (IPP - Institut des politiques publiques, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Chloé Lallemand (IPP - Institut des politiques publiques); Simon Rabaté (IPP - Institut des politiques publiques); Audrey Rain (IPP - Institut des politiques publiques)
    Abstract: A consequence of the French pensions reform whose aim is to establish a universal pension system having defined yield and operating on a points basis will be to reinforce the contributory nature of the formula for calculating pensions. Whereas in the current system the contributory core has counter-redistributive effects – increasing the pensions inequality relative to the salaries inequality – the new system would become neutral and the reform would thus lead to a reduction in pension inequalities. The reason for this counter-intuitive effect – i.e. the effect whereby making the system more contributory reduces inequalities – is to be found in the corrections made by implicit mechanisms in the current system, such as the rules of taking the 25 best years or of revaluating the salaries included in the pensions calculation in line with inflation. Abolishing the rule of number of years of contributions in the pensions scale would also reinforce this effect by being more beneficial to individuals who have had low mean salaries. In this policy brief, we show these effects based on simulations conducted on the population of employees in the French private sector. In addition to individuals on low salaries, women would also benefit signicantly from this change in the calculation formula..
    Date: 2019–06
  14. By: John Armstrong; Cristin Buescu
    Abstract: A collectivised fund is a proposed form of pension investment, in which all investors agree that any funds associated with deceased members should be split among survivors. For this to be a viable financial product, it is necessary to know how to manage the fund even when it is heterogeneous: that is when different investors have different preferences, wealth and mortality. There is no obvious way to define a single objective for a heterogeneous fund, so this is not an optimal control problem. In lieu of an objective function, we take an axiomatic approach. Subject to our axioms on the management of the fund, we find an upper bound on the utility that can be achieved for each investor, assuming a complete markets and the absence of systematic longevity risk. We give a strategy for the management of such heterogeneous funds which achieves this bound asymptotically as the number of investors tends to infinity.
    Date: 2020–04
  15. By: Chen, Simiao; Jin, Zhangfeng; Prettner, Klaus
    Abstract: We examine whether and how retirement affects migration decisions in China. Using a regression discontinuity (RD) design approach combined with a nationally representative sample of 228,855 adults aged between 40 and 75, we find that retirement increases the probability of migration by 12.9 percentage points. Approximately 38% of the total migration effects can be attributed to inter-temporal substitution (delayed migration). Retirement-induced migrants are lower-educated and have restricted access to social security. Household-level migration decisions can reconcile different migration responses across gender. Retirees migrate for risk sharing and family protection mechnisms, reducing market production of their families in the receiving households.
    Keywords: Retirement,Migration decision,Regression discontinuity design
    JEL: J14 J26 J61
    Date: 2020
  16. By: Tomoaki Tanaka; Junichi Yamasaki; Yasuyuki Sawada; Khaliun Dovchinsuren
    Abstract: Abstract Increasing public pension participation rates in developing countries is an important policyobjective. We study three possible constraints to such participation by using a randomized controltrial and the administrative records covering about 40 percent of Mongolian subdistricts. We findthat providing information about subsidiary monetary benefits (survivors' and disability pensions)does not increase participation significantly. However, providing information about the mobilephone payment of pension funds and dispatching experts to a pension administrative agency froma foreign aid agency both increase payments. These results imply that perceived transaction costsand trust affect demand for pension services. They also suggest that foreign aid can affect citizens' participation in public services by changing their perception of these services.
    Keywords: Randomized Control Trial, Pension, Mobile Phones, Foreign Aid, Information
    Date: 2019–12

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