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on Public Economics |
| By: | Sarah M. Brooks (Ohio State University); R. Kent Weaver (The Brookings Institution) |
| Abstract: | Over the past decade, a number of countries have adopted a new form of pension system known as "notional defined contribution" (NDC) pensions. Like traditional defined benefit (DB) pensions, NDC pensions operate largely on a pay-as-you-go basis, but base benefits on total lifetime contributions rather than those in a specified number of peak earnings years. Payroll tax rates are (at least in theory) permanently fixed, while adjustments necessitated by demographic change and slow economic growth are automatically made on the benefit side. The authors argue that adoption of NDC-based reforms reflects political as well as policy considerations. The article analyzes a variety of conditions that have led some countries to adopt NDC-based reforms while such reforms have not even reached the agenda in others. The authors point out a number of problems that may arise during implementation of NDC-based reforms that undercut their potential benefits, and argue that erosion of NDC-based reforms is more likely than outright reversal. |
| Keywords: | pension system, notional defined contribution, NDC, reform |
| JEL: | H55 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2005-04&r=pbe |
| By: | Barbara A. Butrica (Urban Institute); Joshua H. Goldwyn (Urban Institute); Richard W. Johnson (Urban Institute) |
| Abstract: | Understanding the consumption needs of retirees is critical to assessing the adequacy of retirement income and the possible impact of Social Security reform on the well-being of older Americans. This study uses data from the Health and Retirement Study, including a recent supplemental expenditure survey, to analyze spending patterns and consumption needs for adults ages 65 and older. Results indicate that typical older married adults spend 84 percent of after-tax household income, and nonmarried adults spend 92 percent of after-tax income. Even at older ages individuals devote a larger share of their expenditures and income to housing than any other category of goods and services, including health care. Fully 8 percent of married adults report after-tax incomes that fall short of our estimated basic-needs threshold, consisting of housing, health care, food, and clothing. By comparison, only 3 percent of married adults have incomes below the official poverty level. |
| Keywords: | consumption, retirees, spending, income, expenditures |
| JEL: | E21 J14 J12 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2005-03&r=pbe |
| By: | Barbara A. Butrica (Urban Institute); Richard W. Johnson (Urban Institute); Karen E. Smith (Urban Institute); Eugene Steuerle (Urban Institute) |
| Abstract: | Encouraging work at older ages is a critical policy goal for an aging society, but many features of the current system of benefits and taxes provide strong work disincentives. The implicit tax rate on work increases rapidly at older ages, approaching 50 percent for some workers by age 70. In addition, by age 65 people can typically receive nearly as much in retirement as they can by working. If older Americans could overcome these barriers and delay retirement, they could substantially improve their economic well-being at older ages. For example, many people could increase their annual consumption at older ages by more than 25 percent by simply retiring at age 67 instead of age 62. |
| Keywords: | aging, older workers, retirement, taxes |
| JEL: | J14 H24 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-30&r=pbe |
| By: | Rodolfo Apreda |
| Abstract: | This paper sets forth a comprehensive viewpoint about how Public Governance should be assessed and worked-out, by making three contributions to the subject matter. Firstly, it provides the semantics by which this field of learning and practice may become operational in Political Science. Next, a four-tiered framework of analysis is laid bare, which deals with architecture, covenants and safeguards, collective action, and deviant behavior. Afterwards, and focusing on conflict systems, we give heed to the underlying logic of Public Governance, which stems from a network built up around the mechanisms of participation, contest and safeguarding. |
| Keywords: | governance, public governance, conflict systems, institutional safeguards |
| JEL: | H1 H11 D70 D73 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:297&r=pbe |
| By: | Marten Palme (Stockholm University); Annika Sunden (Swedish National Social Insurance Board); Paul Soderlind (University of St. Gallen) |
| Abstract: | In 1998, Sweden passed a pension reform that introduced a second tier of mandatory individual accounts, the Premium Pension, in the public system. Of the total contribution rate of 18.5 percent, 2.5 percentage points go to the accounts. The first investment selections in the Premium Pension plan took place in the fall of 2000 when all Swedes born after 1938 were able to choose how to invest their contributions from a menu of about 650 mutual funds. Approximately 70 percent of participants made an "active choice" while the remaining participants' contributions were invested in a government-run default fund. This paper examines investment choice in the Swedish individual account scheme. First, do workers with high risk in their human capital diversify their overall portfolio by investing their pension funds in low-risk funds? Second, to what extent do participants exhibit "home bias" and invest their pension funds in Swedish assets? The results show a positive relationship between income and the level of risk in the portfolio. But, looking into the details, the relationship is actually somewhat U-shaped: low-income investors take on more risk than middle-income earners. It also seems as if women who qualify for the guarantee benefit (low-income earners) take on more risk than motivated by their situation. We also find that workers in the manufacturing sector - that is, the sector that is probably most correlated with the Swedish stock market - are less likely to invest in foreign assets and thus are exhibiting "home bias." |
| Keywords: | Sweden, pension system, portfolio |
| JEL: | H55 G11 D81 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2005-06&r=pbe |
| By: | R. Kent Weaver (The Brookings Institution) |
| Abstract: | Sweden's new multi-pillar pension system includes a system of mandatory fully-funded individual accounts. The Swedish system tries to keep administrative costs down through centralized management of the collection of contributions, switching among fund options, and record-keeping and communication with account holders. The Swedish system offers contributors more than 600 fund options. However, in the most recent rounds of fund choice, more than 90 percent of new labor market entrants have not made an active choice of funds, and thus have ended up in a government-sponsored default fund. The Swedish system of individual accounts offers a number of lessons for countries considering adoption of a mandatory individual account tier. First, centralized administration of record-keeping, communication and trading functions can help to keep administrative costs down. Second, the lead time needed to set up such a system is considerable. Third, if entry barriers for funds are low, a very large number of fund options are likely to be offered. Fourth, engaging new labor market entrants in fund choice is likely to be difficult, and these barriers are likely to be particularly high for some groups-notably those with limited incomes and low English language skills. Fifth, in the absence of entry barriers for funds, a significant percentage of those making an active fund choice may choose funds that are very specialized and risky. Finally, the likelihood of limited active fund choice means that special care must be devoted both to the design of a default fund and to communicating to potential participants what asset allocation and risk-return trade-offs the default fund is likely to make. |
| Keywords: | Sweden, pension system, mandatory |
| JEL: | H55 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2005-05&r=pbe |
| By: | Ragna Alstadheim (Norges Bank) |
| Abstract: | The Norwegian public sector has net financial assets. The fiscal theory of price determination applies equally to Norway and economies with net public debt: If primary surpluses evolve independently of nominal debt (or assets), the price level has to adjust to satisfy the intertemporal budget constraint of the public sector. In this ‘non-Ricardian’ regime, monetary policy cannot provide the nominal anchor. In the alternative ‘Ricardian’ regime, surpluses respond to debt, and monetary policy is the nominal anchor. The plausibility of NR regimes is disputed. I use fiscal data and oil prices to argue that the Norwegian regime is Ricardian. The fiscal theory of price |
| Keywords: | Price-level determinacy, fiscal policy, Richardian regime, nominal anchor |
| JEL: | E60 E63 |
| Date: | 2005–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2005_05&r=pbe |
| By: | Raymond Fisman; Shachar Kariv; Daniel Markovits |
| Date: | 2005–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:784828000000000284&r=pbe |