nep-age New Economics Papers
on Economics of Ageing
Issue of 2022‒01‒03
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. A Worker’s Backpack as an alternative to PAYG pension systems By Julian Diaz Saavedra; Ramon Marimon; Joao Brogueira de Sousa
  2. Understanding cognitive decline in older ages: The role of health shocks By Schiele, Valentin; Schmitz, Hendrik
  3. The Age for Austerity? Population Age Structure and Fiscal Multipliers By Joseph Kopecky
  4. The Implications of Ageing for Business Dynamics By Igor Fedotenkov; Anneleen Vandeplas
  5. Nursing home aversion post-pandemic: Implications for savings and long-term care policy By Bertrand Achou; Philippe de Donder; Franca Glenzer; Minjoon Lee; Marie-Louise Leroux
  6. Quel rendement attendre de l’épargne retraite pour pallier la baisse projetée des taux de remplacement en répartition ? By Stéphane Hamayon,; Florence Legros; Yannick Pradat
  7. Biased Survival Expectations and Behaviours: Does Domain Specific Information Matter? By Joan Costa-i-Font; Cristina Vilaplana-Prieto
  8. Demographic policy construction: Inapt use of growth rates illustrated By Hasan, Zubair
  9. Welfare and macroeconomic effects of family policies: insights from an OLG model By Oliwia Komada
  10. When the loved one passes - women's well-being in widowhood By Adena, Maja; Hamermesh, Daniel S.; Myck, Michał; Oczkowska, Monika
  11. Market concentration, supply, quality and prices paid by local authorities in the English care home market By Espuny Pujol, Ferran; Hancock, Ruth; Hviid, Morten; Morciano, Marcello; Pudney, Stephen

  1. By: Julian Diaz Saavedra (Department of Economic Theory and Economic History, University of Granada.); Ramon Marimon (European University Institute, UPF - Barcelona GSE, CEPR and NBER.); Joao Brogueira de Sousa (Nova School of Business and Economics.)
    Abstract: With ageing population and historical trends of low employment rates, pay-as-you-go (PAYG) pension systems, currently in place in several European countries, imply very large economic and welfare costs in the coming decades, threatening the sustainability of these systems. In an overlapping generations economy with incomplete insurance markets and frictional labour markets, an employment fund, which can be used while unemployed or retired can enhance production efficiency and social welfare. With an appropriate design, the sustainable Backpack employment fund (BP) can greatly outperform – measured by average social welfare in the economy – existing pay-as-you go systems and also Pareto dominate a full privatization of the pension system, as well as a standard fully funded defined contribution pension system. We show this in a calibrated model of the Spanish economy, by comparing steady-state economies after the ongoing demographic transition under these different pension systems and by showing how a front-loaded transition from the PAYG to the BP system, ahead of the ‘ageing transition’, can be Pareto improving (i.e. without losers), while minimizing the cost of the reform.
    Keywords: Social security reform, Ageing, Taxation.
    JEL: C68 H55 J26
    Date: 2021–12–03
  2. By: Schiele, Valentin; Schmitz, Hendrik
    Abstract: Individual cognitive functioning declines over time. We seek to understand how adverse physical health shocks in older ages contribute to this development. By use of event-study methods and data from the USA, England and several countries in Continental Europe we find evidence that health shocks lead to an immediate and persistent decline in cognitive functioning. This robust finding holds in all regions representing different health insurance systems and seems to be independent of underlying individual demographic characteristics such as sex and age. We also ask whether variables that are susceptible to policy action can reduce the negative consequences of a health shock. Our results suggest that neither compulsory education nor retirement regulations moderate the effects, thus emphasizing the importance of maintaining good physical health in old age for cognitive functioning.
    Keywords: Cognitive decline,health shocks,retirement,education,event study
    JEL: J24 J14 I1 I12 J2
    Date: 2021
  3. By: Joseph Kopecky (Department of Economics, Trinity College Dublin)
    Abstract: Advanced economies face two important trends: population aging and rising debt. In the coming years it will be critical to understand how policies undertaken by governments interact with their changing age structures. In a panel of advanced economies, I show that fiscal deficit consolidation multipliers are highly sensitive to changes in demographics. Broadly speaking, these relationships suggest that population age structure may have exerted negative pressure on fiscal multipliers over the period from the 1980s to the mid 2000s. Projecting forward, this effect is less clear. Simple, one variable, controls for population age suggest that multipliers estimated from spending cuts may grow again as countries move from middle to old-aged. However, these are weakly estimated for tax increases. Controlling for movements across the entire age distribution suggests that tax shocks may have stronger state dependence, with mixed implications over the sample period, but uniform pressure on these multipliers to ard zero as economies continue to age. These findings give hope that the age for austerity may arrive just in time to deal with looming debts, and suggest that more work to understand the mechanisms behind this relationship will be valuable.
    Keywords: Fiscal policy, fiscal multipliers, population aging, demographic change
    JEL: E62 H24 H30 H31 J11
    Date: 2021–12
  4. By: Igor Fedotenkov; Anneleen Vandeplas
    Abstract: This paper studies the link between the demographic structure of populations and firm entry rates in the European Union. We find that firm entry rates have a hump-shaped relationship with human demography, with the 40-54 age group having the strongest positive impact on firm entry. Potential mechanisms through which this relationship may arise include labour market participation, demand and access to entrepreneurship (linked with experience and access to finance). Perhaps more surprisingly, firm entry again picks up with generations aged 80 and over expanding. This could relate to the fact that a larger 80+ age cohort reflects greater longevity, which in turn increases savings, reduces interest rates and therefore increases availability of external financing. When controlling for life expectancy and interest rates, the coefficient corresponding to the 80+ age cohort sharply declines and becomes insignificant. Based on the results of the analysis, we assess the implications of our results for firm entry rates by 2025 and 2030, using UN population projections.
    Keywords: Firm entry rates, demographic structure, longevity
    JEL: D22 J11 J15 L29 M13
    Date: 2021
  5. By: Bertrand Achou (Retirement and savings institute, HEC, Montreal); Philippe de Donder (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Franca Glenzer (Retirement and savings institute, HEC, Montreal); Minjoon Lee (Carleton University - Carleton University); Marie-Louise Leroux (ESG-UQAM - UQAM - Université du Québec à Montréal = University of Québec in Montréal)
    Abstract: COVID-19 outbreaks at nursing homes during the recent pandemic, which received ample media coverage, may have lasting negative impacts on individuals' perceptions regarding nursing homes. We argue that this could have sizable and persistent implications for savings and long-term care policies. We first develop a theoretical model predicting that higher nursing home aversion should induce higher savings and stronger support for policies subsidizing home care. We further document, based on a survey on Canadians in their 50s and 60s, that higher nursing home aversion is widespread: 72% of respondents are less inclined to enter a nursing home because of the pandemic. Consistent with our model, we find that the latter are much more likely to have higher intended savings for older age because of the pandemic. We also find that they are more likely to strongly support home care subsidies.
    Keywords: Pandemic Risk,Nursing Home,Long-Term Care,Savings,Public Policy
    Date: 2021–11–15
  6. By: Stéphane Hamayon, (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine, ICN Business School); Florence Legros (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine, ICN Business School); Yannick Pradat (Harvest France)
    Abstract: The French "PACTE" Law (May 22, 2019) contains several measures relating to the development of retirement savings. The primary goal of the bill is to standardize the existing retirement savings products, while financing the economy and offering savers a higher expected return in a competitive framework. The new law asks at least two questions. That of the effect of pension assets on economic growth, and the issue of modelling stock price dynamics. This paper focuses on assessing the risks associated with providing retirement benefits through a funded plan and analyzes the «well-being» that consumers can get from pension funds compared to PAYG schemes. The results provided by a model built to study the linked impacts of demography and the economy on the French pension system are unambiguous. The comparison of internal rates of return show that if stock prices follow a random walk, a risk averse investor will get more «utility» from PAYG scheme. On the other hand, if stock prices are mean-reverting a massive investment in risky assets would compete public pension plans.
    Abstract: La loi PACTE du 22 mai 2019 vise à orienter l'épargne vers des placements longs productifs en favorisant l'essor de l'épargne retraite. Elle aspire conjointement à modifier la ligne de partage entre répartition et capitalisation. Cette disposition pose deux questions. Celle de l'impact de la capitalisation sur la croissance et celle de la dynamique que l'on prête aux actifs risqués. Cet article est centré sur la mesure du risque associée à l'utilisation des revenus du capital pour financer les retraites et examine la question centrale de l'utilité que les agents peuvent retirer de leur abondement au fonds d'épargne. Les résultats des simulations réalisées dans le cadre démo-économique français montrent que si le prix des actifs risqués suit une marche aléatoire (EMH), les agents averses au risque ne pourront pas obtenir sur les marchés un ratio « rendement / risque » équivalent à celui procuré implicitement par l'édifice des régimes par répartition. En revanche si les chocs sur les marchés boursiers ont un caractère transitoire, alors le marché pourrait concurrencer les régimes par répartition au prix d'un investissement massif en actifs risqués en début et milieu de vie active.
    Keywords: Epargne retraite,Croissance endogène,Time dependent O-U process,TRI.
    Date: 2021–09–17
  7. By: Joan Costa-i-Font; Cristina Vilaplana-Prieto
    Abstract: We study biased survival expectations across two domains and examine whether such biased expectations influence health and financial behaviors. Combining individual-level longitudinal data, retrospective, and end of life data from several European countries for more than a decade, we estimate time-varying individual level bias in ‘survival expectations' (BSE) at the individual level and compare it biased ‘meteorological expectations' (BME). We exploit variation in an individual's family history (parental age at death) to estimate the effect of BSE on health and financial behaviors and compare it to BME, and other tests to discuss whether the effect of BSE results from the effect of private information. We find that BSE increases the probability of adopting less risky behaviors and financial behaviors. We estimate that a one standard deviation increase in BSE reduces the average probability of smoking by 48% and holding retirement accounts by 69%. In contrast, BME barely affects healthy behaviors, and is only associated with a change in some financial behaviors.
    Keywords: biased expectations, survival expectations, meteorological expectations, longevity optimism, private information, health behaviour, financial behaviour
    JEL: I18 D14 G22
    Date: 2021
  8. By: Hasan, Zubair
    Abstract: The use of ratios and percentages is error-prone, especially in demographic areas. This brief paper illustrates such a miss use as an academic exercise, unrevealing the entity.
    Keywords: Demography; Population growth; Base values
    JEL: J10 J11
    Date: 2021–09
  9. By: Oliwia Komada (Group for Research in Applied Economics (GRAPE))
    Abstract: What are the welfare and macroeconomic effects of family policies and how do they depend on policy composition? I answer those questions in overlapping generations model calibrated to the US. I account for the idiosyncratic income risk, redistribution via social security, and tax and benefit system. I explicitly model child-related tax credit, child care subsidies, and child allowance. I show the expansion of the family policy yields higher welfare. The expenditure on the optimal policy accounts for approximately 3% of GDP. Even though the optimal family policy is three times bigger than the status quo policy, taxes decrease when the optimal policy is implemented. Therefore, reform is self-financing. The structure of family policy is crucial for welfare evaluation. Tax credit and child allowance generate higher welfare gains than child care.
    Keywords: family policy, pension system, welfare, income instability
    JEL: D21 E62 H31 H55
    Date: 2021
  10. By: Adena, Maja; Hamermesh, Daniel S.; Myck, Michał; Oczkowska, Monika
    Abstract: A partner's loss is a life-changing experience, and we need more evidence to understand the dynamics of its consequences better. We draw on numerous datasets to examine differences between widowed and partnered older women and to provide a comprehensive picture of well-being in widowhood. Most importantly, our analysis accounts for time use in widowhood, an aspect which has not been studied previously. Based on data from several European countries we trace the evolution of well-being of women who become widowed by comparing them with their matched non-widowed 'statistical twins.' We examine the role of an exceptionally broad set of potential moderators of widowhood's impact on well-being including how individuals spend their time. We confirm a dramatic decrease in mental health and life satisfaction after the loss of partner, followed by a slow recovery. An extensive set of controls recorded prior to widowhood, including detailed family ties and social networks, provides little help in explaining the deterioration in well-being. Unique data from time-diaries kept by older women from several European countries and the U.S. tell us why: the key factor behind widows' reduced well-being is increased time spent alone. This points towards potential areas of support and suggestions both for the widows' families and possibly for public policy. Reducing widows' time spent alone could result in major improvements in their quality of life.
    Keywords: widowhood,well-being,social networks,time use
    JEL: I31 I19 J14
    Date: 2021
  11. By: Espuny Pujol, Ferran; Hancock, Ruth; Hviid, Morten; Morciano, Marcello; Pudney, Stephen
    Abstract: We investigate the impact of exogenous local conditions which favor high market concentration on supply, price and quality in local markets for care homes for older people in England. We extend the existing literature in: (i) considering supply capacity as a market outcome alongside price and quality; (ii) taking account of the chain structure of care home supply and differences between the nursing home and residential care home sectors; (iii) using an econometric approach based on reduced form relationships that treats market concentration as a jointly determined outcome of a complex market. We find that areas susceptible to a high degree of market concentration tend to have greatly restricted supply of care home places and (to a lesser extent) a higher average public cost, than areas susceptible to low degree of market concentration. There is no significant evidence that conditions favoring high market concentration affect average care home quality.
    Keywords: care homes; market concentration; price; quality; supply; ES/L009153/1; ES/L011859/1; NIHR Applied Research Collaboration for Greater Manchester
    JEL: N0 L81
    Date: 2021–08–01

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