nep-age New Economics Papers
on Economics of Ageing
Issue of 2021‒02‒08
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Do Public Sector Workers Increase Their Outside Savings in Response to Pension Cuts? By Laura D. Quinby; Geoffrey Sanzenbacher
  2. Understanding Debt in the Older Population By Annamaria Lusardi; Olivia S. Mitchell; Noemi Oggero
  3. Does the formal home care provided to old-adults persons affect utilisation of support services by informal carers? An analysis of the French CARE and the U.S. NHATS/NSOC surveys By Wilfried Guets
  4. Slow Down Before You Stop: The Effect of the 2010 French Pension Reform on Older Teachers' Sick Leaves By Denis Fougère; Hippolyte d'Albis; Pierre Gouedard
  5. Asset Liability Management: Evidence from the Banco de Portugal defined benefit pension fund By Maria Teresa Medeiros Garcia; Liane Costa Gabriel
  6. Japan's Public Sector Balance Sheet By Yugo Koshima
  7. Private and Social Returns to R&D: Drug Development and Demographics By Efraim Benmelech; Janice C. Eberly; Joshua L. Krieger; Dimitris Papanikolaou
  8. Optimal control of the decumulation of a retirement portfolio with variable spending and dynamic asset allocation By Peter A. Forsyth; Kenneth R. Vetzal; Graham Westmacott
  9. The Causal Impact of Depression on Cognitive Functioning: Evidence from Europe By Nafilyan, Vahé; Pabon, Mauricio Avendano; de Coulon, Augustin
  10. Fatality Risk Regulation By Hammitt, James K.; Treich, Nicolas
  11. Financial Fragility during the COVID-19 Pandemic By Robert L. Clark; Annamaria Lusardi; Olivia S. Mitchell
  12. Early-life Income Shocks and Old-Age Cause-Specific Mortality By Hamid NoghaniBehambari; Farzaneh Noghani; Nahid Tavassoli

  1. By: Laura D. Quinby (Center for Retirement Research at Boston College); Geoffrey Sanzenbacher (Boston College)
    Abstract: As state and local policymakers enact benefit cuts to reduce the cost of their pension systems, the life-cycle model suggests that workers will adjust by saving more on their own. But, whether workers actually respond to pension characteristics remains an open question. After all, income received far in the future may not be salient to young workers deciding how much of their earnings to consume in the present. To answer the question, this paper links the Survey of Income and Program Participation to the Public Plans Database and explores whether state and local workers consider the amount of their pension savings, the funded status of their plan, or their Social Security coverage when deciding whether to participate in a supplemental defined contribution (DC) plan.
    Keywords: pension systems, benefits, savings
    JEL: J26 J32 J45
    Date: 2021–01–22
  2. By: Annamaria Lusardi; Olivia S. Mitchell; Noemi Oggero
    Abstract: Poor financial capability can erode well-being in later life. To explore debt and debt management among older Americans, age 51-61, we designed and analyzed a new module in the 2018 Health and Retirement Study along with information from the 2018 National Financial Capability Study. Even though this group should be at the peak of their retirement savings, it nevertheless carries debt due to student loans and unpaid medical bills; having children also contributes to carrying debt close to retirement. By contrast, the financially literate have more positive financial perceptions and behaviors. Specifically, being able to answer one additional financial literacy question correctly is associated with a higher probability of reporting an above average credit record and planning for retirement. Higher financial literacy is also linked to being less likely to carry excessive debt, being contacted by debt collectors, and carrying medical debt or student loans, even after accounting for a large range of demographics and other characteristics. Evidently, financial knowledge can help limit debt exposure at older ages.
    JEL: G40 G41 G51 G53 H31
    Date: 2020–12
  3. By: Wilfried Guets (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon)
    Abstract: The role of informal carers in long-term care sheds light on the struggle related to population ageing and the increasing incidence of chronic disease. However, despite the increasing number of informal carers, most of them experienced the burden of caregiving. Since various policies have been implemented across countries to support informal carers, their attitude toward support services should be addressed. This research consisted of investigating how formal home care affected the utilisation of support services by informal carers. Data used stemmed from the 2015 Survey Capacité Aide et Ressources des Seniors ("CARE ménage") collected in France; and the National Health and Aging Trends Survey (NHATS) with the National Survey of Caregiving (NSOC) in the United States of America (U.S.). Andersen's health behavioural model of support services utilisation provided a conceptual framework for investigating predisposing, enabling, and need variables associated with informal carers services use. We used a probit model for econometrics modelling. We also checked for the endogeneity of formal care. A sample of N = 4,866 in France and N = 1,060 in the U.S. informal carers and care recipients' dyads were used in the study. In France, the care recipients' formal care utilisation does not influence the carer support service use. Comparatively, in the United States, formal care significantly increases the respite services utilisation by informal carers. This study provides important implications for Long-Term Care (TLC) dedicated to health policy, for an optimal trade-off between informal and formal care use, bearing in mind health system specificities. First, countries may spend more funds in innovative support programs in access to care, because some carers may have difficulties in accessing and using support services. Secondly, to provide and foster information campaigns to raise awareness concerning the utilisation of various existing health services, to improve social welfare..
    Keywords: Formal home care,Informal care,Support service utilisation,Econometrics
    Date: 2021
  4. By: Denis Fougère (OSC - Observatoire sociologique du changement - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po, CEPR - Center for Economic Policy Research - CEPR, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Hippolyte d'Albis (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Pierre Gouedard (OCDE - Organisation de Coopération et de Développement Economiques, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po)
    Date: 2021–01–05
  5. By: Maria Teresa Medeiros Garcia; Liane Costa Gabriel
    Abstract: The level of financing of pension fundsand the inherent risk of default is an issue which has assumed increasing relevance, due to the difficulties that pension funds have beenfacingover recent years, which mainly result from changes in demographic conditions, such as the ageingof the populationand increasing longevity, compounded by the 2008 financial crisis and the Great Recession. Asset Liability Management (ALM) models can be employed to optimiseassetsandliabilities, and at the same time minimisethe risks of a fund, whereby the choice of the best model for a fund dependson the fund’sspecificcharacteristics and risk-return profile. This paper is mainly a theoretical study, where a literature reviewis first carried out both on pension plans and pension funds and alsoon the importance of ALM.This is followed by an analysis of the evolution of this risk management instrument and a description of the selected modelsis then presented. To conclude, an analysis of the application of ALM fora pension fund, the Banco de Portugal defined benefit pension fund, is carried out.
    Keywords: Pension Funds, Pension Plans, Asset Liability Management, Risk Management, Funding Ratio
    Date: 2021–01
  6. By: Yugo Koshima
    Abstract: This paper compiles and reviews the evolution of Japan’s Public Sector Balance Sheet (PSBS). In the past, large crossholdings of assets and liabilities within the public sector played a role in sustaining a high level of public debt and low interest rates. The Fiscal Investment and Loan Fund (FILF) channeled all postal deposits and pension savings to financing of public sector borrowing. After the FILF refrom in 2000, however, the Post Bank and pension funds shifted their assets to the portfolio investments and are seeking to maximize risk-adjusted returns. This has changed the implications of crossholdings for public debt management. In the future, population aging is expected to add more pressures on the PSBS, which already saw a considerable decrease of net worth over the last three decades.
    Keywords: Public sector;Financial sector;Pension spending;Pensions;Debt financing;WP,public sector financing,FILF reform,FILF financing,FILF system,asset allocation
    Date: 2019–10–04
  7. By: Efraim Benmelech; Janice C. Eberly; Joshua L. Krieger; Dimitris Papanikolaou
    Abstract: Investment in intangible capital—in particular, research and development—increased dramatically since the 1990s. However, productivity growth remains sluggish in recent years. One potential reason is that a significant share of the increase in intangible investment is geared toward consumer products such as pharmaceutical drugs with limited spillovers to productivity. We document that a significant share of R&D spending in the U.S. is done by pharmaceutical firms and is geared to developing drugs for the older patients. Increased life expectancy and quality of life among the elderly increases welfare but may not be reflected in estimates of total factor productivity.
    JEL: I10 I15 L65 O32 O34 O40
    Date: 2021–01
  8. By: Peter A. Forsyth; Kenneth R. Vetzal; Graham Westmacott
    Abstract: We extend the Annually Recalculated Virtual Annuity (ARVA) spending rule for retirement savings decumulation to include a cap and a floor on withdrawals. With a minimum withdrawal constraint, the ARVA strategy runs the risk of depleting the investment portfolio. We determine the dynamic asset allocation strategy which maximizes a weighted combination of expected total withdrawals (EW) and expected shortfall (ES), defined as the average of the worst five per cent of the outcomes of real terminal wealth. We compare the performance of our dynamic strategy to simpler alternatives which maintain constant asset allocation weights over time accompanied by either our same modified ARVA spending rule or withdrawals that are constant over time in real terms. Tests are carried out using both a parametric model of historical asset returns as well as bootstrap resampling of historical data. Consistent with previous literature that has used different measures of reward and risk than EW and ES, we find that allowing some variability in withdrawals leads to large improvements in efficiency. However, unlike the prior literature, we also demonstrate that further significant enhancements are possible through incorporating a dynamic asset allocation strategy rather than simply keeping asset allocation weights constant throughout retirement.
    Date: 2021–01
  9. By: Nafilyan, Vahé (London School of Hygiene & Tropical Medicine); Pabon, Mauricio Avendano (King's College London); de Coulon, Augustin (King's College London)
    Abstract: Cognitive skills are important determinants of employment and productivity in older adults. Although cognitive decline is often linked to changes in mental health, the causal nature of the association between mental illness and cognitive performance is not established. In this paper, we analyse the effect of depressive symptoms on cognitive function. Based on longitudinal data for older adults of working age, we use an instrumental variable approach to show that worsening depressive symptoms lead to a decline in cognitive skills. The economic consequences of impaired cognition caused by depressive symptoms may be a large component of mental illness's social costs.
    Keywords: cognitive skills, mental health, longitudinal data
    JEL: J24 I10
    Date: 2021–01
  10. By: Hammitt, James K.; Treich, Nicolas
    Abstract: Environmental, transportation, occupational, and other regulations that reduce fatality risk are frequently evaluated using benefit-cost analysis (BCA). We examine how risk reductions are valued under BCA, utilitarian and prioritarian SWFs. The social value of risk reduction (SVRR) to an individual is the rate of increase of social welfare for a small decrease to the individual’s current-period fatality risk. Under BCA, the SVRR is the individual’s value per statistical life (VSL), which is increasing in wealth and baseline risk. Under utilitarian and prioritarian SWFs, the SVRR is far less sensitive to income; it can decrease with income for prioritarian SWFs that exhibit sufficient inequality aversion. The SVRR increases with or is independent of baseline risk. Like VSL, it can increase or decrease with age, but prioritarian SWFs assign larger SVRR to younger relative to older individuals than does the utilitarian SWF. Extensions to catastrophe aversion and nonfatal health risks are discussed.
    Keywords: mortality; regulation; benefit-cost analysis; value of a statistical life; fair innings; age; income; catastrophe aversion; prioritarian; utilitarian
    Date: 2021–01
  11. By: Robert L. Clark; Annamaria Lusardi; Olivia S. Mitchell
    Abstract: Early in the COVID-19 pandemic, much of the US economy was closed to limit the virus’ spread, and several emergency interventions were implemented. Our analysis of older (45-75) respondents fielded in April-May of 2020 indicates that about one in five respondents was financially fragile and would have difficulty facing a mid-size emergency expense. Some subgroups were at particular risk of facing financial difficulties, especially younger respondents, those with larger families, Hispanics, and the low income. Moreover, the more financially literate were better able to handle such shocks, indicating that knowledge can provide some additional protection during a pandemic.
    JEL: D14 G53 I38
    Date: 2020–12
  12. By: Hamid NoghaniBehambari; Farzaneh Noghani; Nahid Tavassoli
    Abstract: This paper investigates the causal relationship between income shocks during the first years of life and adulthood mortality due to specific causes of death. Using all death records in the United States during 1968-2004 for individuals who were born in the first half of the 20th century, we document a sizable and statistically significant association between income shocks early in life, proxied by GDP per capita fluctuations, and old age cause-specific mortality. Conditional on individual characteristics and controlling for a broad array of current and early-life conditions, we find that a 1 percent decrease in the aggregate business cycle in the year of birth is associated with 2.2, 2.3, 3.1, 3.7, 0.9, and 2.1 percent increase in the likelihood of mortality in old ages due to malignant neoplasms, Diabetes Mellitus, cardiovascular diseases, Influenza, chronic respiratory diseases, and all other diseases, respectively.
    Date: 2021–01

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