nep-age New Economics Papers
on Economics of Ageing
Issue of 2021‒11‒29
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Political (In)Stability of Funded Social Security By Beetsma, Roel M. W. J.; Komada, Oliwia; Makarski, Krzysztof; Tyrowicz, Joanna
  2. The Murder-Suicide of the Rentier: Population Aging and the Risk Premium By Joseph Kopecky; Alan M. Taylor
  3. Reforming the Greek Pension System By Mr. Daehaeng Kim; Mr. Alvar Kangur; Niki Kalavrezou
  4. Aging, migration and monetary policy in Poland By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  5. The Impact of Trust in Government on Rural Residents’ Participation in China's New Rural Pension Scheme By WU, JunBiao; Zhang, Yvette; Lin, Benxi
  6. Who still dies young in a rich city? Revisiting the case of Oxford By Brimblecombe, Nicola; Dorling, Danny; Green, Mark
  7. Refundable income annuities: Feasibility of money-back guarantees By Moshe A. Milevsky; Thomas S. Salisbury
  8. Efficiency versus Insurance: Capital Income Taxation and Privatizing Social Security By Makarski, Krzysztof; Tyrowicz, Joanna; Komada, Oliwia
  9. Okay Boomer... Excess Money Growth, Inflation, and Population Aging By Joseph Kopecky
  10. The Effects of Education on Mortality: Evidence Using College Expansions By Jason Fletcher; Hamid Noghanibehambari
  11. Does Grandparenting Pay off for the Next Generations? Intergenerational Effects of Grandparental Care By Barschkett, Mara; Spieß, C. Katharina; Ziege, Elena
  12. Optimal allocation to deferred income annuities By F. Habib; H. Huang; A. Mauskopf; B. Nikolic; T. S. Salisbury

  1. By: Beetsma, Roel M. W. J. (University of Amsterdam); Komada, Oliwia (GRAPE); Makarski, Krzysztof (Warsaw School of Economics); Tyrowicz, Joanna (University of Warsaw)
    Abstract: We analyze the political stability of funded social security. Using a stylized theoretical framework we study the mechanisms behind governments capturing social security assets in order to lower current taxes. The results and the driving mechanisms carry over to a fully-fledged and carefully calibrated overlapping generations model with an aging population. Funding is efficient in a Kaldor-Hicks sense. We demonstrate that, even though we can rationalize the actual introduction of a two-pillar defined-contribution scheme with funding through a majority vote, a new vote to curtail the funded pillar through asset capture or permanent diversion of contributions to the pay-as-you-go pillar always receives majority support. For those alive and thus allowed to vote, the temporary reduction in taxes outweighs the reduction in retirement benefits. This result is robust to substantial intra-cohort heterogeneity and other extensions, and only overturned with a sufficient degree of altruism. Our analysis rationalizes the experience of Central and Eastern European countries, who rolled back their funded pension pillars soon after setting them up.
    Keywords: social security, funding, pay-as-you-go, asset capture, majority vote, welfare
    JEL: H55 D72 E17 E27
    Date: 2021–10
  2. By: Joseph Kopecky (Department of Economics, Trinity College Dublin); Alan M. Taylor (Department of Economics and Graduate School of Management, University of California, Davis)
    Abstract: Population aging has been linked to global declines in real interest rates. A similar trend is seen for equity risk premia, which are on the rise. An existing literature can explain part of the declining trend in safe rates using demographics, but has no mechanism to speak to trends in relative returns on different assets. We calibrate a heterogeneous agent life-cycle model with equity markets and aggregate risk, and we show that aging demographics can simultaneously account for both the majority of a downward trend in the risk free rate, while also increasing the return 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 to push the risk free rate further into negative territory, while the equity risk premium remains elevated.
    Keywords: life-cycle model, demographics, rates of return, safe assets, risky assets, secular stagnation
    JEL: E21 E43 G11 J11
    Date: 2020–03
  3. By: Mr. Daehaeng Kim; Mr. Alvar Kangur; Niki Kalavrezou
    Abstract: The Greek pension system has been costly, complex, and distortive, which has contributed to Greece’s fiscal problems and discouraged labor force participation. Several attempts to reform the system faltered due to lack of implementation, pushback by vested interests, and court rulings leading to reversals. A series of reforms introduced throughout 2015–17 unified benefit and contribution rules, removed several distortions and reduced fragmentation and costs. If fully implemented throughout the long-term, these reforms can go a long way towards enhancing the pension system affordability. However, reforms faced setbacks and fell short of creating stronger incentives to build long contribution histories, to deliver sustainable growth by improving the fiscal policy mix, and to ensure fairness and equitable burden sharing across generations and interest groups. Policy priorities should aim towards fully implementing the 2015–17 reforms and complementing them with additional reforms to address these remaining objectives.
    Keywords: pension reform, labor market incentives, fiscal consolidation.; policy priority; pension system affordability; reform objective; Policy recommendation; pension system; Pension spending; Pensions; Aging; Retirement; Wages; Europe
    Date: 2021–07–16
  4. By: Marcin Bielecki (Narodowy Bank Polski); Michał Brzoza-Brzezina (Narodowy Bank Polski); Marcin Kolasa (SGH Warsaw School of Economics)
    Abstract: Poland faces a particularly sharp demographic transition. The old-age dependency ratio is expected to increase from slightly above 20% in 2000 to over 60% in 2050. At the same time the country has recently witnessed a huge wave of immigration, mostly from Ukraine. In this paper we investigate how aging and migration will affect the Polish economy and what consequences these adjustments have for its monetary policy. Using a general equilibrium model with life-cycle considerations, we show that the decline in the natural rate of interest (NRI) due to demographic processes is substantial, amounting to more than 1.5 percentage points, albeit spread over a period of 40 years. The impact of migration flows is relatively small and cannot significantly alleviate the downward pressure on the NRI induced by populating aging. If the central bank is slow in learning about the declining NRI, an extended period of inflation running below the target is likely. In this case, the probability of hitting the zero lower bound (ZLB) becomes a major constraint on monetary policy while it could remain under control if the central bank uses demographic trends to update the NRI estimates in real time.
    Keywords: aging, monetary policy, migration, life-cycle models
    JEL: E43 E52
    Date: 2021
  5. By: WU, JunBiao; Zhang, Yvette; Lin, Benxi
    Keywords: Agricultural and Food Policy, Consumer/Household Economics
    Date: 2021–08
  6. By: Brimblecombe, Nicola; Dorling, Danny; Green, Mark
    Abstract: There are substantial inequalities in mortality and life expectancy in England, strongly linked to levels of deprivation. Mortality rates among those who are homeless are particularly high. Using the city of Oxford (UK) as a case study, we investigate ward-level premature standardised mortality ratios for several three-year and five-year periods between 2002 and 2016, and explore the extent to which the mortality of people who become homeless contributed to any rise or fall in geographical inequalities during this period. Age–sex standardised mortality ratios (SMRs) for people aged under 65 years old, with and without deaths among the homeless population, were calculated using Office for National Statistics Death Registration data for England and Wales 2002−2016. Individuals who were homeless or vulnerably housed were identified using records supplied by a local Oxford homeless charity. We found that in an increasingly wealthy, and healthy, city there were persistent ward-level inequalities in mortality, which the city-wide decrease in premature mortality over the period masked. Premature deaths among homeless people in Oxford became an increasingly important contributor to the overall geographical inequalities in health in this city. In the ward with the highest SMR, deaths among the homeless population accounted for 73% of all premature deaths of residents over the whole period; in 2014–2016 this proportion rose to 88%. Homelessness among men (the vast majority of the known homeless population) in this gentrifying English city rose to become the key explanation of geographical mortality patterns in deaths before age 65 across the entire city, particularly after 2011. Oxford reflects a broader pattern now found in many places across England of increasing homeless deaths, widening geographical inequalities in life expectancy, and sharp increases in all-age SMRs. The answer to the question, “Who dies young in a rich, and in fact an even richer, place?” is – increasingly – the homeless.
    Keywords: health-geography; inequality; mortality; homeless; Oxford
    JEL: N0
    Date: 2020–06–01
  7. By: Moshe A. Milevsky; Thomas S. Salisbury
    Abstract: Refundable income annuities (IA), such as cash-refund and instalment-refund, differ in material ways from the life-only version beloved by economists. In addition to lifetime income they guarantee the annuitant or beneficiary will receive their money back albeit slowly over time. We document that refundable IAs now represent the majority of sales in the U.S., yet they are mostly ignored by insurance and pension economists. And, although their pricing, duration, and money's-worth-ratio is complicated by recursivity which will be explained, we offer a path forward to make refundable IAs tractable. A key result concerns the market price of cash-refund IAs, when the actuarial present value is grossed-up by an insurance loading. We prove that price is counterintuitively no longer a declining function of age and older buyers might pay more than younger ones. Moreover, there exists a threshold valuation rate below which no price is viable. This may also explain why inflation-adjusted IAs have all but disappeared.
    Date: 2021–11
  8. By: Makarski, Krzysztof (Warsaw School of Economics); Tyrowicz, Joanna (University of Warsaw); Komada, Oliwia (GRAPE)
    Abstract: We study the interactions between capital income tax and social security privatization in the context of rising longevity. In an economy with idiosyncratic income shocks, redistributive defined benefit social security provides some insurance against income uncertainty. This insurance comes at the expense of efficiency loss due to labor supply distortions. The existing view in the literature states that reducing this distortion by introducing (partially funded) defined contribution social security would reduce welfare because the loss of insurance and the transitory fiscal gap dominate the efficiency gains. However, prior research financed the transitory costs of the reform by taxing consumption. We show that in the context of longevity, capital income taxation provides a superior alternative: welfare gains are sufficient to outweigh the loss of insurance and transitory fiscal gap. We provide explanations for a mechanism behind this result and we reconcile our results with the earlier literature.
    Keywords: longevity, capital income taxation, social security reform, fiscal policy, welfare effects
    JEL: C68 D72 E62 H55 J26
    Date: 2021–10
  9. By: Joseph Kopecky (Department of Economics, Trinity College Dublin)
    Abstract: Is inflation a monetary phenomenon? In the decades since the influential work of Milton Friedman, the great moderation has seemingly put to bed the idea that monetary aggregates serve as a useful tool for policy makers. While many point to a structural change in the underlying relationship between money growth and inflation, there is limited understanding as to why this monetary transmission has broken down. In this paper, I provide evidence that population age structure has an important impact on the relationship between excess money growth and inflation. Estimating these effects using a long run sample of data, I find that the one-to-one relationship between excess money growth and inflation implied by the quantity theory appears to hold over long horizons, with short-to-medium run effects that are smaller, but significant. I then show that changes in the population age structure, particularly as the baby boomer generation has moved through it, can explain a strengthening of this transmission during the highly inflationary period of the 1970s, as well as a complete disappearance during the 1990s and early 2000s. At present demographic headwinds on this relationship seem to have abated, with their effect opening the door for a potential return to money driven inflation.
    Keywords: Inflation, Aging, Money Growth
    JEL: E31 E40 E50 E52
    Date: 2021–06
  10. By: Jason Fletcher; Hamid Noghanibehambari
    Abstract: This paper explores the long-run health benefits of education for longevity. Using mortality data from the Social Security Administration (1988-2005) linked to geographic locations in the 1940-census data, we exploit changes in college availability across cohorts in local areas. We estimate an intent to treat effect of exposure to an additional 4-year college around age 17 of increasing longevity by 0.13 months; treatment on the treated calculations suggest increases in longevity between 1-1.6 years. Some further analyses suggest the results are not driven by pre-tends, endogenous migration, and other time-varying local confounders. This paper adds to the literature on the health and social benefits of education.
    JEL: I1 I23 I26
    Date: 2021–10
  11. By: Barschkett, Mara (DIW Berlin); Spieß, C. Katharina (Bundesinstitut für Bevölkerungsforschung (BiB)); Ziege, Elena (DIW Berlin)
    Abstract: Grandparents act as the third largest caregiver after parental care and daycare in Germany, as in many Western societies. Adopting a double-generation perspective, we investigate the causal impact of this care mode on children's health, socio-emotional behavior, and school outcomes, as well as parental well-being. Based on representative German panel data sets, and exploiting arguably exogenous variations in geographical distance to grandparents, we analyze age-specific effects, taking into account counterfactual care modes. Our results suggest null or negative effects on children's outcomes: If children three years and older are in full-time daycare or school and, in addition, cared for by grandparents, they have more health and socio-emotional problems, in particular conduct problems. In contrast, our results point to positive effects on parental satisfaction with the childcare situation and leisure. The effects for mothers correspond to an increase of 11 percent in satisfaction with the childcare situation and 14 percent in satisfaction with leisure, compared to the mean, although the results differ by child age. While the increase in paternal satisfaction with the childcare situation is, at 21 percent, even higher, we do not find an effect on paternal satisfaction with leisure.
    Keywords: grandparental childcare, socio-emotional outcomes, cognitive outcomes, parental well-being, instrumental variable
    JEL: D1 I21 I31 J13 J14
    Date: 2021–10
  12. By: F. Habib; H. Huang; A. Mauskopf; B. Nikolic; T. S. Salisbury
    Abstract: In this paper we employ a lifecycle model that uses utility of consumption and bequest to determine an optimal Deferred Income Annuity (DIA) purchase policy. We lay out a mathematical framework to formalize the optimization process. The method and implementation of the optimization is explained, and the results are then analyzed. We extend our model to control for asset allocation and show how the purchase policy changes when one is allowed to vary asset allocation. Our results indicate that (i.) refundable DIAs are less appealing than non-refundable DIAs because of the loss of mortality credits; (ii.) the DIA allocation region is larger under the fixed asset allocation strategy due to it becoming a proxy for fixed-income allocation; and (iii.) when the investor is allowed to change asset-allocation, DIA allocation becomes less appealing. However, a case for higher DIA allocation can be made for those individuals who perceive their longevity to be higher than the population.
    Date: 2021–11

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