nep-age New Economics Papers
on Economics of Ageing
Issue of 2021‒03‒22
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Demographic Transition and its Impacts on Fiscal Sustainability in East and Southeast Asia By Korwatanasakul, Upalat; Sirivunnabood, Pitchaya; Majoe, Adam
  2. Demographic Transition for Economic Development in Taipei,China: Literature and Policy Implications By Chu, Chin-Peng; Yeh, Kuo-Chun
  3. The Spanish pension system: an update in the wake of the pandemic Banco de España contribution to the Committee on the Monitoring and Assessment of the Toledo Pact Agreements. 2 september 2020 By Pablo Hernández de Cos
  4. Cognitive Impairment and Prevalence of Memory-Related Diagnoses among U.S. Older Adults By Qian, Yuting; Chen, Xi; Tang, Diwen; Kelley, Amy S.; Li, Jing
  5. The Effect of Increasing Retirement Age on Households’ Savings and Consumption Expenditures By Stefan Etgeton; Björn Fischer; Han Ye
  6. Adverse Childhood Circumstances and Cognitive Function in Middle-Aged and Older Chinese Adults: Lower Level or Faster Decline? By Lin, Zhuoer; Chen, Xi
  7. Increasing the Effective Retirement Age: Key Factors and Interaction Effects By Atav, Tilbe; Jongen, Egbert L. W.; Rabat, Simon
  8. Stress and Retirement By Raquel Fonseca; Hugo Morin; Ana I. Moro-Egido
  9. CEO Stress, Aging, and Death By Mark Borgschulte; Marius Guenzel; Canyao Liu; Ulrike Malmendier
  10. WP 07-19 - A comparative analysis of deprivation among the elderly in Belgium By Manon Bolland; Gijs Dekkers; Karel Van den Bosch
  11. Robust equilibrium strategies in a defined benefit pension plan game By Guohui Guan; Jiaqi Hu; Zongxia Liang
  12. El sistema de pensiones en España: una actualización tras el impacto de la pandemia. Contribución del Banco de España a los trabajos de la Comisión de Seguimiento y Evaluación de los Acuerdos del Pacto de Toledo. 2 de septiembre de 2020 By Pablo Hernández de Cos
  13. Discount Rates, Mortality Projections, and Money's Worth Calculations for US Individual Annuities By James M. Poterba; Adam Solomon
  14. Optimal management of DC pension fund under relative performance ratio and VaR constraint By Guohui Guan; Zongxia Liang; Yi xia

  1. By: Korwatanasakul, Upalat (Asian Development Bank Institute); Sirivunnabood, Pitchaya (Asian Development Bank Institute); Majoe, Adam (Asian Development Bank Institute)
    Abstract: Many economies in East and Southeast Asia are progressing toward becoming aging or aged societies. The impacts of this demographic transition are multifaceted and far-reaching and include declining tax revenues, leading to fiscal imbalances, and possible increases in government expenditures for coping with care expenses and pension schemes. We provide insights into ways to balance fiscal revenue against costly pension and social security systems and increasing healthcare expenditures. Using panel data for 178 countries across 18 years to capture the state of fiscal balance and data on demographic transition, we estimate three models to analyze the relationships between (i) demographic transition and government balance, (ii) demographic transition and government health expenditure, and (iii) demographic transition and government debt. The results first establish that health expenditure is negatively associated with the government balance. Then, for the relationship between demographic transition and health expenditure, old-age dependency and the share of the population aged over 64 shows a significant positive relationship with health expenditure. We find that demographic transition does not have a direct effect on the government balance, but instead has an indirect effect through higher government expenditure. This can be explained by the high costs of treating health conditions related to old age, including chronic illnesses. Our findings provide important implications for fiscal sustainability and necessitate comprehensive reviews of public health spending; healthcare reforms that prioritize accessibility for all and efficiency in healthcare services; and cost-sharing measures to mitigate the age-related fiscal burden. These measures will be particularly important in dealing with the impacts of the coronavirus disease (COVID-19) pandemic, to which the elderly are particularly vulnerable.
    Keywords: demographic transition; population aging; fiscal balance; fiscal sustainability
    JEL: H30 H51 H55 J11 J14 J18
    Date: 2021–03–03
  2. By: Chu, Chin-Peng (Asian Development Bank Institute); Yeh, Kuo-Chun (Asian Development Bank Institute)
    Abstract: As an economy with a population of 23 million, Taipei,China is enjoying the demographic dividend of economic growth resulting from a shift in the population age structure, but an increasingly aged population could be bad for the economy. As an international comparison, its population is aging faster than that of most members of the Asian Development Bank and other advanced economies. Based on the literature, we evaluate the impact of aging on economic growth and volatility using relevant data and then concludes with the government policies relevant to the prospective aging problem. At the current stage, the situation is not as bad as expected. An aging workforce with positive productivity has no negative impact on economic growth. The old-age dependency ratio has a significantly negative effect on economic development, but appropriate foreign labor immigration and elderly long-term care policies can mitigate it. Higher education attainment still works to support economic growth in the long run. Besides, an increase in longevity first enhances and then erodes net foreign assets, and high old-age dependency ratios cause investments to respond strongly to technology shocks because individuals prefer to save more for retirement in aging societies. However, population aging has a minor influence on the dynamics of the macroeconomic variables. Nevertheless, the government should be cautious and allocate resources to help labor-intensive and low-skilled industries transform into more innovation-oriented and knowledge-intensive ones. Social welfare support must also become an important aspect of the social security framework.
    Keywords: population aging; economic growth; net foreign assets; demographic policy; health care; Taipei; China
    JEL: J11 J18
    Date: 2021–03–05
  3. By: Pablo Hernández de Cos (Banco de España)
    Abstract: In 2017 the Banco de España published an Occasional Paper (DO 1701) describing the institutional framework of the pension system, setting out the main medium-term challenges and analysing some reform alternatives. In this paper the Governor updates the foregoing analysis for the Committee on the Monitoring and Assessment of the Toledo Pact Agreements on the basis of the latest figures and regulatory developments. He considers alternatives for reforming the pension system based on their impact on its financial sustainability and overall public finances; on employment, productivity and the economy’s potential growth; and on the system’s sufficiency and inter- and intra-generational equity.
    Keywords: pension system, reform proposals, Toledo Pact, Social Security balance, population ageing, contributory pensions, social contributions, sustainability factor, public finances, pay-as-you-go public contributory system, pension schemes, real-estate saving, gender gap, pandemic
    JEL: H55 H61 J11 D14 J71
    Date: 2021–02
  4. By: Qian, Yuting; Chen, Xi; Tang, Diwen; Kelley, Amy S.; Li, Jing
    Abstract: Cognitive impairment creates significant challenges to health and well-being of the fast-growing aging population. Early recognition of cognitive impairment may confer important advantages, allowing for diagnosis and appropriate treatment, education, psychosocial support, and improved decision-making regarding life planning, health care, and financial matters. Yet the prevalence of memory-related diagnoses among older adults with early symptoms of cognitive impairment is unknown. Using 2000-2014 Health and Retirement Survey - Medicare linked data, we leveraged within-individual variation in a longitudinal cohort design to examine the relationship between incident cognitive impairment and receipt of diagnosis among American older adults. Receipt of a memory-related diagnosis was determined by ICD-9-CM codes. Incident cognitive impairment was assessed using the modified Telephone Interview of Cognitive Status (TICS). We found overall low prevalence of early memory-related diagnosis, or high rate of underdiagnosis, among older adults showing symptoms of cognitive impairment, especially among non-whites and socioeconomically disadvantaged subgroups. Our findings call for targeted interventions to improve the rate of early diagnosis, especially among vulnerable populations.
    Keywords: cognitive impairment,cognitive aging,dementia,Medicare,memory-related diagnosis
    JEL: I11 I14 J14 I18 R20
    Date: 2021
  5. By: Stefan Etgeton; Björn Fischer; Han Ye
    Abstract: This paper examines how households adjust their savings and consumption expenditure in response to an anticipated increase in the early retirement age (ERA). We examine the 1999 pension reform in Germany, which increased the ERA for women born after 1951 by at least three years. Using the German Income and Consumption Survey, we find a negative impact on private savings of 0.6 percentage points, which is driven by married households. We show that households consisting of highly educated women and homeowners are more likely to reduce their savings rates. Furthermore, we find that the treated households increase their leisure spending while maintaining an unchanged level of disposable income. Our findings suggest that the treated households absorb the pension wealth shock without increasing their savings.
    Keywords: Pension Reform; Early Retirement Age; Savings; Pension Wealth; Consumption Expenditur
    JEL: D14 J14 J26
    Date: 2021–01
  6. By: Lin, Zhuoer (Yale University); Chen, Xi (Yale University)
    Abstract: We examine the long-term relationship between childhood circumstances and cognitive aging. In particular, we differentiate the level of cognitive deficit from the rate of cognitive decline. Applying a linear mixed-effect model to three waves of China Health and Retirement Longitudinal Surveys (CHARLS 2011, 2013, 2015) and matching cognitive outcomes to CHARLS Life History Survey (2014), we find that key domains of childhood circumstances, including family socioeconomic status (SES), neighborhood cohesion, friendship and health conditions, are significantly associated with both the level of cognitive deficit and the rate of decline. In contrast, childhood neighborhood safety only affects the level of cognitive deficit. Childhood relationship with mother only affects the rate of cognitive decline. The effects of adverse childhood circumstances are generally larger on level of cognitive deficit than on rate of cognitive decline. Moreover, education plays a more important role in mediating the relationships compared to other later-life factors. These findings suggest that exposure to disadvantaged childhood circumstances can exacerbate cognitive deficit as well as cognitive decline over time, which may be partially ameliorated by educational attainment.
    Keywords: childhood circumstances, life course factors, cognitive aging, education
    JEL: I14 I24 J13 J14
    Date: 2021–03
  7. By: Atav, Tilbe (CPB Netherlands Bureau for Economic Policy Analysis); Jongen, Egbert L. W. (CPB Netherlands Bureau for Economic Policy Analysis); Rabat, Simon (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We study the effects of the recent increase in the statutory retirement age (SRA) in the Netherlands, using RDD and rich administrative data on the universe of the Dutch population. We find large interaction effects with a preceding early retirement reform. The employment effect of the SRA reform is much larger for cohorts receiving less generous early retirement benefits. Indeed, the level of employment before the SRA, together with the retirement hazard at the SRA, is key to understanding the effects of retirement age reforms. Our results further point to a big role for automatic job termination in the Netherlands.
    Keywords: social insurance, employment, statutory retirement age, bunching, Netherlands
    JEL: J14 J26
    Date: 2021–02
  8. By: Raquel Fonseca; Hugo Morin; Ana I. Moro-Egido
    Abstract: This paper investigates the bi-directional causal relationship between retirement and stress. We use PSID data for the period 2007-2015. Using a simultaneous equations approach, we find that a rise in stress increases the probability to retire by roughly 15.4 percentage points, while retirement decreases stress by 34.5 percentage points. We find the same results when we disaggregate by individuals’ characteristics, but the former effect is stronger for males, for people working in typical blue-collar jobs, and for people whose wealth is below the mean; while the latter is stronger for males, for white-collar workers, for people whose wealth is above the mean, and for white individuals. We show that official retirement ages are a strong instrument for actual retirement age, and that lagged physical activity levels are a non-linear instrument for perceived stress. We also confirm that objective measures of mental health are a strong instrument for perceived stress.
    Keywords: Stress,Retirement,Physical Activity,Simultaneous Equation Models,
    JEL: C30 J26
    Date: 2021–03–11
  9. By: Mark Borgschulte; Marius Guenzel; Canyao Liu; Ulrike Malmendier
    Abstract: We estimate the long-term effects of experiencing high levels of job demands on the mortality and aging of CEOs. The estimation exploits variation in takeover protection and industry crises. First, using hand-collected data on the dates of birth and death for 1,605 CEOs of large, publicly-listed U.S. firms, we estimate the resulting changes in mortality. The hazard estimates indicate that CEOs’ lifespan increases by two years when insulated from market discipline via anti-takeover laws, and decreases by 1.5 years in response to an industry-wide downturn. Second, we apply neural-network based machine-learning techniques to assess visible signs of aging in pictures of CEOs. We estimate that exposure to a distress shock during the Great Recession increases CEOs’ apparent age by one year over the next decade. Our findings imply significant health costs of managerial stress, also relative to known health risks.
    JEL: G01 G3 I10 J01
    Date: 2021–03
  10. By: Manon Bolland; Gijs Dekkers; Karel Van den Bosch
    Abstract: This Working Paper identifies the characteristics that explain severe material deprivation in Belgium, while making a distinction between people aged below 65 and those aged 65 or above. Severe material deprivation has decreased for both groups. Young people are more impacted than the elderly. Although there is a clear link between income and deprivation, the overlap between individuals identified as at risk of poverty and those as severely deprived is far from perfect. The correlation between income poverty and deprivation is weaker for the old group than for the young.
    JEL: D12 I32
    Date: 2019–07–10
  11. By: Guohui Guan; Jiaqi Hu; Zongxia Liang
    Abstract: This paper investigates the robust {non-zero-sum} games in an aggregated {overfunded} defined benefit (abbr. DB) pension plan. The sponsoring firm is concerned with the investment performance of the fund surplus while the participants act as a union to claim a share of the fund surplus. The financial market consists of one risk-free asset and $n$ risky assets. The firm and the union both are ambiguous about the financial market and care about the robust strategies under the worst case scenario. {The union's objective is to maximize the expected discounted utility of the additional benefits, the firm's two different objectives are to maximizing the expected discounted utility of the fund surplus and the probability of the fund surplus reaching an upper level before hitting a lower level in the worst case scenario.} We formulate the related two robust non-zero-sum games for the firm and the union. Explicit forms and optimality of the solutions are shown by stochastic dynamic programming method. In the end of this paper, numerical results are illustrated to depict the economic behaviours of the robust equilibrium strategies in these two different games.
    Date: 2021–03
  12. By: Pablo Hernández de Cos (Banco de España)
    Abstract: En 2017, el Banco de España publicó un documento ocasional (DO 1701) en el que se describía el marco institucional del sistema de pensiones, se presentaban sus principales retos a medio plazo y se analizaban algunas propuestas de reforma. En este nuevo documento, el gobernador actualiza ese análisis para la Comisión de Seguimiento y Evaluación de los Acuerdos del Pacto de Toledo, sobre la base de las cifras y los desarrollos normativos más recientes. Asimismo, plantea las alternativas de reforma del sistema de pensiones sobre la base de su impacto sobre su sostenibilidad financiera y del conjunto de las finanzas públicas, sobre el empleo, la productividad y el crecimiento potencial de la economía, y sobre la suficiencia y la equidad inter- e intrageneracional del sistema.
    Keywords: sistema de pensiones, propuestas de reforma, Pacto de Toledo, saldo de la Seguridad Social, envejecimiento poblacional, pensiones contributivas, cotizaciones sociales, factor de sostenibilidad, finanzas públicas, sistema contributivo público de reparto, planes de pensiones, ahorro inmobiliario, diferencias de género, pandemia
    JEL: H55 H61 J11 D14 J71
    Date: 2021–02
  13. By: James M. Poterba; Adam Solomon
    Abstract: Estimates the expected present discounted value (EPDV) of future payouts on both immediate and deferred annuities are sensitive to the discount rate used to value future payment streams and assumptions about future mortality rates. This paper illustrates this with respect to annuities that were available in the US retail insurance market in 2020. The spread between the interest rates on Treasury and corporate bonds was high by historical standards as a share of the riskless Treasury yield during much of 2020, making the choice of discount rate more consequential than in the past. The EPDV estimates also depend on whether the rapid but since-attenuated decline in US old-age mortality rates during the 1990s and early 2000s is extrapolated to future decades. The “money’s worth” is the EPDV divided by the annuity’s purchase price. Our central estimates, using discount rates drawn from the corporate BBB yield curve and future mortality rates that combine a Society of Actuaries individual annuitant mortality table with projections of future mortality improvements from the Social Security Administration, suggest money’s worth values for annuities offered to 65-year-old men and women of about 92 cents per premium dollar. Recent Department of Labor rulemaking requires defined contribution plan sponsors to provide participants with estimates of the annuity income stream that their plan balance could purchase. These estimates, like EPDVs, are also sensitive to both prospective rate of return and mortality rate assumptions.
    JEL: G22 J14 J26
    Date: 2021–03
  14. By: Guohui Guan; Zongxia Liang; Yi xia
    Abstract: In this paper, we investigate the optimal management of defined contribution (abbr. DC) pension plan under relative performance ratio and Value-at-Risk (abbr. VaR) constraint. Inflation risk is introduced in this paper and the financial market consists of cash, inflation-indexed zero coupon bond and a stock. The goal of the pension manager is to maximize the performance ratio of the real terminal wealth under VaR constraint. An auxiliary process is introduced to transform the original problem into a self-financing problem first. Combining linearization method, Lagrange dual method, martingale method and concavification method, we obtain the optimal terminal wealth under different cases. For convex penalty function, there are fourteen cases while for concave penalty function, there are six cases. Besides, when the penalty function and reward function are both power functions, the explicit forms of the optimal investment strategies are obtained. Numerical examples are shown in the end of this paper to illustrate the impacts of the performance ratio and VaR constraint.
    Date: 2021–03

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