nep-age New Economics Papers
on Economics of Ageing
Issue of 2023‒01‒09
23 papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Health-Consumption Effects of Increasing Retirement Age Late in the Game By Eve Caroli; Catherine Pollak; Muriel Roger
  2. Declining US Natural Interest Rate: Quantifying and Qualifying the Role of Pensions By Jacopo Bonchi; Guido Caracciolo
  3. Are Retirement Planning Tools Substitutes or Complements to Financial Capability? By Goda, Gopi Shah; Levy, Matthew R.; Flaherty Manchester, Colleen; Sojourner, Aaron; Tasoff, Joshua; Xiao, Jiusi
  4. Stable marital histories predict happiness and health across educational groups By Miika Mäki; Anna Erika Hägglund; Anna Rotkirch; Sangita Kulathinal; Mikko Myrskylä
  5. Population ageing and government revenue: Expected trends and policy considerations to boost revenue By David Crowe; Jörg Haas; Valentine Millot; Łukasz Rawdanowicz; Sébastien Turban
  6. Testing methods to enhance longevity awareness By Mitchell, Olivia S.; Sade, Orly; Hurwitz, Abigail
  7. Business models, consumer experiences and regulation of retirement villages By Travers, Max; Liu, Edgar; Cook, Peta; Osborne, Caroline; Jacobs, Keith; Aminpour, Fatemeh; Dwyer, Zack
  8. The long-term impact of quasi-universal transfers to older households By Aleksandra Kolasa
  9. Mutual Fund Revenue Sharing in 401(k) Plans By Veronika K. Pool; Clemens Sialm; Irina Stefanescu
  10. Inequality and Public Pension Entitlements By Sierminska, Eva; Wroński, Marcin
  11. Do Pension Benefits Accelerate Cognitive Decline? Evidence from Rural China By Nikolov, Plamen; Hossain, Md Shahadath
  12. CharacteristicsoftheSouthAfricanretirementfundindustry By Neryvia Pillay; Johannes Fedderke
  13. Intergenerational Sharing of Unhedgeable Inflation Risk By Damiaan Chen; Roel Beetsma; Sweder van Wijnbergen
  14. Demographic Changes and Asset Prices in an Overlapping Generations Model By Simo-Kengne, Beatrice D.; Riedel, Frank; Demeze-Jouatsa, Ghislain-Herman
  15. The impact of automatic enrolment on the mental health gap in pension participation: evidence from the UK By Arulsamy, Karen; Delaney, Liam
  16. Retire on the House: The Possible Use of Reverse Mortgages to Enhance Retirement Security By Warshawsky, Mark
  17. Aging in Style: Does How We Write Matter? By Hamermesh, Daniel S.; Kosnik, Lea-Rachel
  18. Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform By Derek Messacar
  19. Sobre la financiación de la Seguridad Social: algunas reflexiones al hilo de la propuesta de “destope” de las cotizaciones By Ángel de la Fuente
  20. The politics of pension policy responses to COVID-19: comparative insights from Chile, Bolivia and Peru By Carrera, Leandro; Angelaki, Marina
  21. The Welfare Effects of Debt: Crowding Out and Risk Shifting: Working Paper 2022-10 By Michael Falkenheim
  22. Job Insecurity and Health: Evidence from Older European Workers By Suari-Andreu, Eduard; Schwartz, Tim; van Lent, Max; Knoef, Marike
  23. Does Children’s Education Improve Parental Longevity? Evidence From Two Educational Reforms in England By Madia, Joan Eliel; Präg, Patrick; Monden, Christiaan Willem Simon

  1. By: Eve Caroli (Legos - Laboratoire d'Economie et de Gestion des Organisations de Santé - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique); Catherine Pollak (DREES - Centre de Recherche du DREES - Ministère de l'Emploi et de la Solidarité, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique); Muriel Roger (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Using the differentiated increase in retirement age across cohorts introduced by the 2010 French pension reform, we estimate the health-consumption effects of a 4-month increase in retirement age. We focus on individuals who were close to retirement age but not retired yet by the time the reform was passed. Using administrative data on individual sick-leave claims and nonhospital health-care expenses, we show that the probability of having at least one sickness absence increases for all treated groups, while the duration of sick leaves remains unchanged.Delaying retirement does not increase the probability of seeing a GP, except for men in the younger cohorts. In contrast, it raises the probability of having a visit with a specialist physician for all individuals, except men in the older cohorts. Delaying retirement also increases the probability of seeing a physiotherapist among women from the older cohorts. Overall, itincreases health expense claims, in particular in the lower part of the expenditure distribution.
    Keywords: Pension reform, Retirement age, Health, Health-care consumption
    Date: 2022–12–15
  2. By: Jacopo Bonchi; Guido Caracciolo
    Abstract: We develop a life-cycle model and calibrate it to the US economy to quantify and qualify the role of the public pension system for the past and future trend of the natural interest rate, the so-called r*. Between 1970 and 2015, past pension reforms mitigated the secular decline in r*, raising it by around 1%, mainly through the positive effect of a higher replacement rate. As regards the future, we simulate the demographic trends, expected between 2015 and 2060, combined with alternative pension reforms and productivity growth scenarios. An increase in the effective retirement age delivers the highest r*, and thus the best welfare results, regardless of future productivity. On the contrary, the effects of a lower replacement rate strongly depend on the future productivity scenario. Under stagnant productivity, such pension system adjustment would exacerbate the fall in r* induced by population ageing, with negative implications for welfare.
    Keywords: Natural interest rate, pensions, population ageing
    JEL: E60 H55
    Date: 2022–12
  3. By: Goda, Gopi Shah (Stanford University); Levy, Matthew R. (London School of Economics); Flaherty Manchester, Colleen (University of Minnesota); Sojourner, Aaron (Upjohn Institute for Employment Research); Tasoff, Joshua (Claremont Graduate University); Xiao, Jiusi (Claremont Graduate University)
    Abstract: We conduct a randomized controlled trial to understand how a web-based retirement saving calculator affects workers' retirement-savings decisions. In both conditions, the calculator projects workers' retirement income goal. In the treatment condition, it also projects retirement income based on defined-contribution savings, prominently displays the gap between projected goal and actual retirement income, and allows users to interactively explore how alternative, future contribution choices would affect the gap. The treatment increased average annual retirement contributions by $174 (2.3 percent). However, effects were larger for those with greater financial knowledge, suggesting this type of tool complements, rather than substitutes for, underlying financial capability.
    Keywords: retirement planning, retirement saving, exponential-growth bias, present bias, financial literacy, financial capability
    JEL: D14 G53 J32
    Date: 2022–11
  4. By: Miika Mäki; Anna Erika Hägglund; Anna Rotkirch; Sangita Kulathinal; Mikko Myrskylä (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Couple relations are a key determinant of mental and physical well-being in old age. However, we do not know how the advantages and disadvantages associated with partnership histories vary between socioeconomic groups. We create relationship history typologies for the cohorts 1945-1957 using the Survey of Health, Ageing, and Retirement in Europe, and examine, for the first time, how relationship histories relate to multiple indicators of well-being by educational attainment. Results show that stable marriages co-occur with higher well-being, compared to single and less stable partnership histories. All educational groups experience clear and similar benefits from stable unions. The adverse outcomes of union dissolution are more pronounced for those with lower education. The larger drawbacks on well-being among the less educated, especially among men, suggest that those with fewer resources suffer more from losing a partner. The findings underscore that current and past romantic relations predict well-being in old age and help policymakers in identifying vulnerable subgroups among the aging population. Keywords: partnership history, cumulative disadvantage, health, quality of life, aging
    JEL: J1 Z0
    Date: 2022
  5. By: David Crowe; Jörg Haas; Valentine Millot; Łukasz Rawdanowicz; Sébastien Turban
    Abstract: Population ageing is expected to result in significantly higher government spending in many OECD countries in the coming decades. This paper sheds light on the macroeconomic consequences of population ageing for government revenue in a framework consistent with the OECD long-term model. If the labour and capital income shares in GDP remain constant and pension income increases in relation to GDP, the tax revenue-to-GDP ratio will increase slightly. However, this will not be enough to cover the total increase in government spending due to population ageing. If governments do not mitigate spending pressures by structural reforms or cuts in pension entitlements, they will have to boost tax revenue significantly to prevent public debt from expanding. In many countries, it will not be possible, nor advisable, to completely finance the increase in long-term spending with only one tax instrument as it would require a massive rise in the tax rate, with risks of ensuing distortions. Thus, governments will have to choose mixes of tax increases, accounting for growth, equity and political considerations. This paper reviews these considerations for several specific tax categories.
    Keywords: pensions, population ageing, public finances, tax policy, tax revenue
    JEL: H21 H23 H24 H55 I38 J14 E17
    Date: 2022–12–13
  6. By: Mitchell, Olivia S.; Sade, Orly; Hurwitz, Abigail
    Abstract: Many people do not understand the concepts of life expectancy and longevity risk, potentially leading them to under-save for retirement or to not purchase longevity insurance, which in turn could reduce wellbeing at older ages. We investigate alternative ways to increase the salience of both concepts, allowing us to assess whether these change peoples' perceptions and financial decision making. Using randomly-assigned vignettes providing subjects with information about either life expectancy or longevity, we show that merely prompting people to think about financial decisions changes their perceptions regarding subjective survival probabilities. Moreover, this information also boosts respondents' interest in saving and demand for longevity insurance. In particular, longevity information influences both subjective survival probabilities and financial decisions, while life expectancy information influences only annuity choices. We provide some evidence that many people are simply unaware of longevity risk.
    Keywords: retirement expectations, annuity, longevity, life expectancy
    JEL: G52 J32 D91
    Date: 2022
  7. By: Travers, Max; Liu, Edgar; Cook, Peta; Osborne, Caroline; Jacobs, Keith; Aminpour, Fatemeh; Dwyer, Zack
    Abstract: This research looks at the appeal, benefits and disadvantages of living in retirement villages, as well as at the business models employed and how the Australian Government can help the sector to expand. Retirement villages are a fast-growing housing sector: in 2014 approximately 184,000 Australians lived in retirement villages, equivalent to 5.7 per cent of the population aged 65 and over, a rate projected to increase to 7.5 per cent by 2025. Living in retirement villages saves the health care system $2.16 billion, with $1.98 billion of those savings achieved by postponing residents’ entry into government funded aged care facilities; however the sector does not currently receive direct funding from Commonwealth or state and territory governments. Retirement villages are governed by state and territory legislation in Australia, with each jurisdiction enacting its own set of regulations. A state tribunal in each jurisdiction provides independent, low cost and accessible dispute resolution in consumer or tenancy disputes. The major providers active in the retirement village industry are for-profit companies who market their product as a ‘lifestyle choice’ to entice wealthy Australians to purchase accommodation. There is little prospect that small not-for-profit organisations will expand their retirement provision without significant government funding (in the form of tax breaks, subsidies etc.). This research makes a number of recommendations, including a national ombudsman to support and advocate for the rights of older people navigating disputes with retirement village operators; greater transparency into fees and ongoing charges for retirement village residents; and building standards that ensure retirement village operators are responsible for providing accessible, universally designed residences and facilities.
    Date: 2022–12–13
  8. By: Aleksandra Kolasa (University of Warsaw, Faculty of Economic Sciences)
    Abstract: One of the key challenges associated with current demographic trends is to provide adequate financial support to older households without jeopardizing fiscal sustainability or harming macroeconomic performance. Among possible policies, quasi-universal transfers have recently gained traction in several countries. One example of this approach is the 13th Pension, introduced in 2019 in Poland. In this paper, I study the long-term aggregate, redistributive, and welfare effects of this type of program, and compare its impact to that of more standard elderly-oriented policies with similar fiscal costs. I also investigate how simple modifications would affect its costs and effectiveness. My analysis is based on a general equilibrium overlapping generations model of an open economy that incorporates family types, individual risk associated with earnings, health and mortality, and stochastic out-of-pocket expenses. According to the model simulations, a quasi-universal transfer to retired households such as the Polish 13th Pension program significantly improves the financial situation of a median pensioner but generates an aggregate welfare loss (under the veil of ignorance) equivalent to a 0.7% reduction in average household lifetime consumption. It also has only a moderate impact on average measures of poverty and inequality.
    Keywords: monetary poverty, catastrophic health expenditure, out-of-pocket medical expenses, recursive probit models
    JEL: I32 I14 J14
    Date: 2022
  9. By: Veronika K. Pool; Clemens Sialm; Irina Stefanescu
    Abstract: Recordkeepers in DC pension plans are often paid indirectly in the form of revenue sharing from third-party funds on the menu. We show that these arrangements affect the investment menu of 401(k) plans. Revenue-sharing funds are more likely to be added to the menu and are less likely to be deleted. Overall, revenue-sharing plans are more expensive as higher expense ratios are not offset by lower direct fees or by superior performance. Rebates increase with the market power of the recordkeeper suggesting that third-party funds may revenue share to gain access to retirement assets.
    JEL: G11 G23 G28 G40 G50 H75
    Date: 2022–12
  10. By: Sierminska, Eva; Wroński, Marcin
    Abstract: The literature on wealth inequality is expanding very fast. Wealth is usually more concentrated than income. However, traditional measures of wealth inequality are based only on private wealth, and thus exclude public pension entitlements. In this chapter, the literature on the impact of public pension entitlements on wealth inequality is discussed. Empirical research shows, that wealth inequality is significantly reduced after accounting for public pension wealth. The value of Gini index is usually reduced by 20 - 40%.
    Keywords: Inequality, Public Pensions
    JEL: D31 H55
    Date: 2022
  11. By: Nikolov, Plamen (State University of New York); Hossain, Md Shahadath (State University of New York)
    Abstract: Economists have mainly focused on human capital accumulation, rather than on the causes and consequences of human capital depreciation in late adulthood. To investigate how human capital depreciates over the life cycle, we examine how a newly introduced pension program, the National Rural Pension Scheme, affects cognitive performance in rural China. We find significant adverse effects of access to pension benefits on cognitive functioning among the elderly. We detect the most substantial impact of the program on delayed recall, a cognition measure linked to the onset of dementia. In terms of mechanisms, we find that cognitive deterioration in late adulthood is mediated by a substantial reduction in social engagement, volunteering, and activities fostering mental acuity.
    Keywords: life cycle, human capital, cognitive functioning, cognition, middleincome countries, LMICs, developing countries
    JEL: H55 J24 I31 O12 J26 J14 H75
    Date: 2022–11
  12. By: Neryvia Pillay; Johannes Fedderke
    Abstract: Characteristics of the South African retirement fund industry
    Date: 2022–12–19
  13. By: Damiaan Chen; Roel Beetsma; Sweder van Wijnbergen
    Abstract: We explore how members of a collective pension scheme can share inflation risks in the absence of suitable ï¬ nancial market instruments. Using intergenerational risk sharing arrangements, risks can be allocated better across the various participants of a collective pension scheme than would be the case in a strictly individual- or cohort-based pension scheme, as these can only lay off risks via existing ï¬ nancial market instruments. Hence, intergenerational sharing of these risks enhances welfare. In view of the sizes of their funded pension sectors, this would be particularly beneï¬ cial for the Netherlands and the U.K.
    Keywords: pension funds; intergenerational risk sharing; unhedgeable inflation risk; incom- plete markets; welfare loss
    JEL: C61 E21 G11 G23
    Date: 2022–12
  14. By: Simo-Kengne, Beatrice D. (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University); Demeze-Jouatsa, Ghislain-Herman (Center for Mathematical Economics, Bielefeld University)
    Abstract: We examine the effect of demographic shifts on asset prices in an overlapping generations model with endogenous population dynamics. We establish a robust inverse relationship between returns and the old dependency ratio. We document the absence of a simple monotonic relationship between asset prices and demographic parameters. Returns depend on the joint evolution of fertility, mortality, and lifetime work in a complex way that we quantify. We carry out an extensive empirical study involving 55 countries. Both theoretical and empirical findings reconcile existing propositions on the population age structure and asset returns for riskless and short-lived risky assets.
    Keywords: Demography, Asset prices, OLG, Panel cointegration, Granger causality
    Date: 2022–12–15
  15. By: Arulsamy, Karen; Delaney, Liam
    Abstract: A large body of evidence shows that individuals with poor mental health have lower income over the lifespan but a dearth of evidence exists on how poor mental health affects savings behaviour. In this paper, we provide novel evidence of a mental health gap in pension participation in the UK using nationally representative longitudinal data from Understanding Society (UKHLS). Beginning in 2012, the UK government introduced automatic enrolment enabling us to assess the impact of one of the largest pension policy reforms in the world on this mental health gap. We measure mental health using the General Health Questionnaire (GHQ-12) which is a commonly used tool for measuring psychological distress. Prior to automatic enrolment, we find that male private sector employees with poor mental health are 3.7 percentage points less likely to participate in a workplace pension scheme while female private sector employees with poor mental health are 2.9 percentage points less likely to participate after controlling for key observables including age, education, race, marital status, number of children, occupation type, industry type, presence of a physical health condition and cognitive ability. The implementation of automatic enrolment removes the mental health gap in pension participation, equalising the pension participation rates of individuals with and without poor mental health in the private sector.
    Keywords: automatic enrolment; financial security; longitudinal studies; mental health; pensions; psychological distress; savings; Economic and Social Research Council and various Government Departments; with scientific leadership by the Institute for Social and Economic Research; University of Essex; and survey delivery by NatCen Social Research and Kantar Public.
    JEL: J32 D91
    Date: 2022–12–01
  16. By: Warshawsky, Mark (Mercury Publication)
    Abstract: Abstract not available.
  17. By: Hamermesh, Daniel S. (University of Texas at Austin); Kosnik, Lea-Rachel (University of Missouri-St. Louis)
    Abstract: The scholarly impact of academic research matters for academic promotions, influence, relevance to public policy, and others. Focusing on writing style in top-level professional journals, we examine how it changes with age, how stylistic differences and age affect impact, and how style and prior scholarly output relate to an author's subsequent achievements and labor-force decisions. As top-level scholars age, their writing style increasingly differs from others'. The impact (measured by citations) of each contribution decreases, due to the direct effect of age and the much smaller indirect effects through style. Non-native English speakers write in a different style from others, in ways that reduce the impact of their research. Scholars produce less top-flight work as they age, especially those who have produced less in the recent past, whose work is less cited, and whose styles have been more positive. Previously less productive authors are more likely to retire.
    Keywords: aging, citations, bibliometrics, language
    JEL: B41 A14
    Date: 2022–11
  18. By: Derek Messacar
    Abstract: This paper estimates real and avoidance responses to income taxation among older couples in Canada. Using administrative data and exploiting a unique reform affecting tax on pension income, I observe large effects on labor supply using an instrumental variables approach. However, workers respond to compensated changes in their average rather than marginal tax rates, consistent with ‘schmeduling’ behavior. Further, I show that taxable incomes vary with the availability of deductions, offering credible evidence of tax planning within couples. These findings provide new insights into the black box of intra-household labor supply and have implications for estimating excess burden of taxation.
    Keywords: Elasticity of taxable income; tax avoidance; unitary model; collective model; schmeduling; empirical density design; instrumental variables
    JEL: D13 H24 H26
    Date: 2022
  19. By: Ángel de la Fuente
    Abstract: Uno de los componentes clave de la segunda fase de la reforma del sistema de pensiones que el Gobierno está preparando es un destope gradual de las bases de cotización a la Seguridad Social, que aumentarían en casi un 35% en términos reales durante el próximo cuarto de siglo. Mis cálculos sugieren que esta medida tendría un impacto recaudatorio muy modesto (menos de dos décimas de punto del PIB por año una vez se complete) y por lo tanto contribuiría de forma muy limitada a la sostenibilidad del sistema.
    Date: 2022–12
  20. By: Carrera, Leandro; Angelaki, Marina
    Abstract: The COVID-19 pandemic has sparked a debate around the world on whether pension systems should be used to support individuals in economic distress. In Latin America, Chile, Bolivia and Peru have passed legislation allowing withdrawals from pension pots, yet with some significant variation. We argue that these measures cannot be simply understood because of the COVID-19 emergency alone but should also take into consideration the combination of legacies from previous pension re-reforms and the political institutional setting. We find that where previous re-reforms have been difficult to implement or have not been implemented at all and the institutional setting makes change difficult, measures that lead to a significant amount of savings being withdrawn may be favoured by political actors as a way to break the stalemate. By contrast, where re-reforms have been largely implemented and the political institutional setting poses few barriers to change, withdrawals may be more limited.
    Keywords: institutions; policy legacies; pensions; Latin America; Covid-19; coronavirus; CUP deal
    JEL: R14 J01
    Date: 2022–10–10
  21. By: Michael Falkenheim
    Abstract: Government debt affects people’s welfare through two distinct channels: It crowds out capital, and it shifts risk from current to future generations. This study extends Olivier Blanchard’s 2019 analysis of the welfare effects of debt by decomposing his estimates into those two categories. Blanchard estimated the change in average utility under simulations of an overlapping generations model with and without a transfer of wealth from the younger to the older generation. This study decomposes those estimated welfare effects into crowding-out and risk- shifting components and
    JEL: E22 E23 E43 E62 H50 H63
    Date: 2022–12–16
  22. By: Suari-Andreu, Eduard (University of Leiden); Schwartz, Tim (SEO Amsterdam); van Lent, Max (Leiden University); Knoef, Marike (Leiden University)
    Abstract: A rich literature has studied the effect of job insecurity on health. However the causal link between these two variables remains unclear. We study the relationship between perceived job insecurity and health using longitudinal data on around 30 thousand older workers from 20 European countries covering a period of 14 years. The unprecedented size and nature of the dataset compared to previous studies on job insecurity and health allows us to apply different estimation methods and compare the results obtained. We do so using a wide range of health outcomes that include objective and subjective measures. Using pooled OLS, we estimate a strong association between job insecurity and health outcomes. A fixed effect estimator yields precisely estimated zeros with the exception of a few mental conditions. Additionally, we test the robustness of an IV strategy that uses an index for employment protection legislation (EPL) as an instrument for job insecurity. We conclude that the direct causal link between job insecurity and health for older workers is in any case rather weak and discuss several reasons for our findings.
    Keywords: job insecurity, health, older workers, employment protection legislation
    JEL: I10 I18 J28 J81
    Date: 2022–11
  23. By: Madia, Joan Eliel; Präg, Patrick; Monden, Christiaan Willem Simon (University of Oxford)
    Abstract: Parents of better-educated children are healthier and live longer. Is this a non-monetary return to education which crosses generational boundaries, or is this the consequence of unobserved factors (e.g. shared genes or living conditions) driving both children’s education and parental health? Using data from the English Longitudinal Study of Aging (ELSA) and two educational reforms that raised the mandatory school-leaving age from age 14 to 15 years in 1947 and from age 15 to 16 years in 1972, we investigate the causal effect of children’s education on parental longevity. Results suggest that both one-year increases in school-leaving age significantly reduced the hazard of dying for fathers as well as for mothers. We do not find a consistent pattern when comparing differences in the effects of daughters’ and sons’ education. Lower class parents benefitted more from the 1972 reform than higher class parents. We discuss these results against the backdrop of generational conflict and the specific English context.
    Date: 2022–12–06

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