Verbič, Miroslav and Spruk, Rok (2011): Aging population and public pensions: theory and evidence.
Download (324kB) | Preview
Rapidly aging population in high-income countries has exerted additional pressure on the sustainability of public pension expenditure. We present a formal model of public pension expenditure under endogenous human capital, where the latter facilitates a substantial decrease in equilibrium fertility rate alongside the improvement in life expectancy. We demonstrate how higher life expectancy and human capital endowment facilitate the rise of net replacement rate. We provide and examine an empirical model of old-age expenditure in a panel of 33 countries in the period 1998–2008. Our results indicate that increases in total fertility rate and effective retirement age would reduce age-related expenditure substantially. While higher net replacement rate would alleviate the risk of old-age poverty, it would endanger long-term sustainability of public finance by imposing additional pressure on deficit and public debt.
|Item Type:||MPRA Paper|
|Original Title:||Aging population and public pensions: theory and evidence|
|Keywords:||public pensions; aging; social security; replacement rate; life expectancy|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions
J - Labor and Demographic Economics > J1 - Demographic Economics > J11 - Demographic Trends, Macroeconomic Effects, and Forecasts
|Depositing User:||Miroslav Verbic|
|Date Deposited:||21. May 2012 02:53|
|Last Modified:||14. Feb 2013 01:42|
Acemoglu, Daron (2005). “Politics and Economics in Weak and Strong States.” NBER Working Paper 11275. Cambridge, MA: National Bureau of Economic Research.
Acemoglu, Daron, and Simon Johnson (2007). “Disease and Development: The Effect of Life Expectancy on Economic Growth.” Journal of Political Economy 115(6): 925-985.
Baker, Michael, Jonathan Gruber, and Kevin Miligan (2003). “The Retirement Incentive Effect of Canada’s Income Security Programs.” Canadian Journal of Economics 36(2): 261-291.
Barr, Nicholas, and Peter A. Diamond (2008). “Reforming Pensions: Principles, Analytical Errors and Policy Directions.” International Social Security Review 62(8): 5-19.
Barro, Robert J., and Gary S. Becker (1989). “Fertility Choice in a Model of Economic Growth.” Econometrica 57(2): 480-501.
Becker, Gary, Kevin Murphy, and Robert Tamura (1990). “Human Capital, Fertility and Economic Growth.” Journal of Political Economy 98(5): 12-37.
Bellman, Richard E. (1957). Dynamic Programming. New Jersey: Princeton University Press.
Blanchard, Olivier J. (1985). “Debt, Deficits and Finite Horizons”. Journal of Political Economy 93(2): 223-247.
Blanchflower, David, and Richard Freeman (1996). “The Legacy of Communist Labor Relations.” NBER Working Paper 4740. Cambridge, MA: National Bureau of Economic Research.
Blöndal, Sveinbjörn, and Stefano Scarpetta (1999). “The Retirement Decision in OECD Countries.” OECD Economics Department Working Paper 202. Paris: Organisation for Economic Co-operation and Development.
Bloom, David E., David Canning, Günther Fink, and Jocelyn E. Finlay (2009). “The Effect of Social Security Reform on Male Retirement in High and Middle-Income Countries.” PGDA Working Paper 48. Boston, MA: Harvard School of Public Health.
Boldrin, Michele, Mariacristina De Nardi, and Larry E. Jones (2005). “Fertility and Social Security.” NBER Working Paper 11146. Cambridge, MA: National Bureau of Economic Research.
Bongaarts, John (2004). “Population Aging and the Rising Cost of Public Pensions.” Population and Development Review 30(1): 1-23.
Boskin, Michael (1975). “Social Security and Retirement Decisions.” NBER Working Paper 107. Cambridge, MA: National Bureau of Economic Research.
Bovenberg, Ary L., and Thijs Knapp (2005). “Ageing, Funded Pensions and the Dutch Economy.” CESifo Working Paper 1403. Munich: Ifo Institute for Economic Research.
Bravo, Jorge, and Andras Uthoff (1999). “Transition Fiscal Costs and Demographic Factors in Shifting from Unfunded to Funded Pension in Latin America.” Serie Financiamiento del Desarrollo 88. Santiago, Chile: Economic Commission for Latin America and the Caribbean.
Burtless, Gary, and Joseph F. Quinn (2002). “Is Working Longer an Answer for an Aging Workforce?” Boston College Department of Economics Working Paper 550. Chestnut Hill, MA: Boston College, Department of Economics.
Caldwell, John C., Pat Caldwell, and Peter McDonald (2002). “Policy Responses to Low Fertility and its Consequences: A Global Survey.” Journal of Population Research 19(1): 1-24.
Canegrati, Emanuele (2007). “The Decision to Retire: Some Microeconomic Hints.” MPRA Paper 1533. Munich: University of Munich, Munich University Library.
Cass, David, and Menahem Yaari (1966). “A Re-examination of Pure Consumption Loans Models.” Journal of Political Economy 74(4): 353-367.
Coile, Courtney C., and Jonathan Gruber (2004). “The Effect of Social Security on Retirement in the United States.” In Social Security Programs and Retirement Around the World: Micro-Estimation, ed. Jonathan Gruber, and David A. Wise. Chicago: University of Chicago Press.
Coile, Courtney C., and Jonathan Gruber (2007). “Future Social Security Entitlements and the Retirement Decision.” Review of Economics and Statistics 89(2): 234-246.
Coronado, Julia Lynn (2002). “The Effects of Social Security Privatization on Household Saving: Evidence from Chile.” Contributions to Economic Analysis and Policy 1(1): 152-175.
Dang, Thai Than, Pablo Antolin, and Howard Oxley (2001). “Fiscal Implications of Ageing: Projections of Age-Related Spending.” OECD Economics Department Working Paper 305. Paris: Organisation for Economic Co-operation and Development.
Diamond, Peter A. (1965). “National Debt in a Neoclassical Growth Model.” American Economic Review 55(5): 1126-1150.
Diamond, Peter A. (2005). “Social Security, Government Budget and National Savings.” MIT Department of Economics Working Paper 05-09. Cambridge, MA: Massachusetts Institute of Technology, Department of Economics.
Disney, Richard (1999). “OECD Public Pension Programmes in Crisis: An Evaluation of the Reform Options.” Social Protection Discussion Paper 9921. Washington, DC: The World Bank.
Disney, Richard (2000). “Crises in Public Pension Programmes in OECD: What are the Reform Options?” Economic Journal 110(461): 1-23.
Dutta, Jayasri, Sandeep Kapur, and Michael J. Orszag (2000). “A Portfolio Approach to the Optimal Funding of Pensions.” Economics Letters 69(2): 201-206.
Feldstein, Martin S., and Jeffrey Liebman (2001). “Social Security.” NBER Working Paper 8451. Cambridge, MA: National Bureau of Economic Research.
Feldstein, Martin S., and Elena Ranguelova (2001). “Individual Risk in Investment-Based Social Security System.” American Economic Review 91(4): 1116-1125.
Filer, Randall, and Marjorie Honig (2005). “Endogenous Pensions and Retirement Behavior.” CESifo Working Paper 1547. Munich: Ifo Institute for Economic Research.
Gal, John (2010). “Is There an Extended Family of Mediterranean Welfare States?” Journal of European Social Policy 20(4): 283-300.
Gendel, Murray (1998). “Trends in Retirement Age in Four Countries, 1965-95.” Monthly Labor Review 121(8): 20-30.
Gertler, Mark (1999). “Government Debt and Social Security in a Life-Cycle Economy.” Carneige-Rochester Conference Series on Public Policy 50(1): 61-110.
Gokhale, Jagadeesh (2009). “Measuring the Unfunded Obligations of European Countries.” NCPA Policy Report 319. Washington, DC: National Center for Policy Analysis.
Gruber, Jonathan, and David A. Wise (1998). Social Security Systems Around the World. Chicago, IL: University of Chicago Press.
Hausman, Jerry (1978). “Specification Tests in Econometrics.” Econometrica 46(6): 1251-1271.
Herbertsson, Tryggvi T., and Michael J. Orszag (2001). “The Costs of Early Retirement in the OECD.” Institute of Economic Studies Working Paper W01-02. Reykjavík: University of Iceland, Institute of Economic Studies.
Jappelli, Tulio, and Franco Modigliani (1998). “The Age-Saving Profile and the Life-Cycle Hypothesis.” CSEF Working Paper 09. Naples: University of Naples, Center for Studies in Economics and Finance.
Kotlikoff, Lawrence, and Willi Leibfritz (1999). “An International Comparison of Generational Accounts.” NBER Working Paper W6447. Cambridge, MA: National Bureau of Economic Research.
Lee, Ronald D., and Ryan D. Edwards (2001). “The Fiscal Impact of Population Change.” Conference Series: Proceedings. Boston, MA: Federal Reserve Bank of Boston.
Lucas, Robert E. (2002). Lectures on Economic Growth. Cambridge, MA: Harvard University Press.
Meier, Volker, and Matthias Wrede (2010).“Pensions, Fertility and Education.” Journal of Pension Economics and Finance 9(1): 75-93.
Polanec, Sašo, Aleš Ahčan, and Miroslav Verbič (2010). “Retirement Decisions in Transition: Microeconometric Evidence from Slovenia.” IER Working Paper 52. Ljubljana: Institute for Economic Research.
Prescott, Edward C. (2004). “Why do Americans Work so Much More than Europeans?” Federal Reserve Bank of Minneapolis Quarterly Review 28(1): 2-15.
Quinn, Joseph, Richard Burkhauser, Kevin Cahill, and Robert Weathers (1998). “Microeconometric Analysis of the Retirement Decision: United States.” OECD Economics Department Working Paper 203. Paris: Organisation for Economic Co-operation and Development.
Samuelson, Paul A. (1958). “An Exact Consumption-Loan Model of Interest With or Without Social Contrivance of Money.” Journal of Political Economy 66(6): 467-482.
Seshamani, Meena, and Alastair Gray (2002). “The Impact of Ageing on Expenditures in the National Health Service.” Age and Ageing 31(4): 287-294.
Stensnes, Kyrre, and Nils Martin Stølen (2007). “Pension Reform in Norway: Microsimulating Effects on Government Expenditure, Labor Supply Incentives and Benefit Distribution.” Discussion Paper 524. Oslo: Statistics Norway, Research Department.
Svejnar, Jan (1996). “Pensions in the Former Soviet Bloc: Problems and Solutions.” William Davidson Institute Working Paper 14. Ann Arbor, MI: University of Michigan Business School, William Davidson Institute.
Van den Noord, Paul J., and Richard Herd (1993). “Pension Liabilities in the Seven Major Economies.” OECD Economics Department Working Paper 142. Paris: Organisation for Economic Co-operation and Development.
Verbič, Miroslav (2007). “Varying the Parameters of the Slovenian Pension System: An Analysis with an Overlapping-Generations General Equilibrium Model.” Post-Communist Economies 19(4): 449-470.
Wigger, Berthold (1999). “Pay-as-you-go Financed Public Pensions in a Model of Endogenous Growth and Fertility.” Journal of Population Economics 12(4): 625-640.
Yamagata, Takashi (2005). “On Testing Sample Selection Bias under the Multicollinearity Problem.” Cambridge Working Paper in Economics 0522. Cambridge, UK: University of Cambridge, Faculty of Economics.