ICIR Conference Summary
SESSION 1: OPTIMAL RETIREMENT INVESTMENT
Paper: Retirement Portfolios and Annuitization Taking Social Security Into Account
Authors: Vanya Horneff, Raimond Maurer, Olivia S. Mitchell
Speaker: Olivia S. Mitchell
Drawing on the results of a quantitative life-cycle model of U.S. households, Olivia S. Mitchell talked about welfare effects of deferred income annuities in a defined contribution (DC) system with social security. In the model, households have the option to purchase fixed or variable deferred income annuities (DIAs) in DC plans and to decide upon the optimal point of time of claiming social security benefits. The model predicts that using a portion of the retirement assets to buy a fixed DIAs is welfare enhancing, even though the magnitudes of the gains vary substantially across population groups. While high-earning individuals see their welfare increase more than 7 times as strong as low-earning individual by purchasing fixed DIAs, low earners gain more welfare by delaying their social security benefits.
Paper: Is One Plus One Always Two? Insuring Longevity Risk While Having Multiple Savings Accounts
Authors: Abigail Hurwitz, Orly Sade
Speaker: Abigail Hurwitz
Abigail Hurwitz’ talk dealt with the impact of having multiple savings accounts across various providers on the payout decisions at retirement. Using data from Israel, she and her co-authors show that the relative size of each specific account shape retirees’ decisions to annuitize or cash out at retirement. While retirees with small accounts were more likely to choose lump-sum payments at the start of retirement, larger accounts were more likely to be annuitized. These empirical results were further confirmed in an internet survey and a laboratory experiment.
SESSION 2: INSURANCE DESIGN
Paper: Money-Back Guarantees in Individual Retirement Accounts: Are They Still Good Policy?
Authors: Vanya Horneff, Daniel Liebler, Raimond Maurer, Olivia S. Mitchell
Speaker: Raimond Maurer
The German pension system includes a tax-supported voluntary private pension scheme with money-back guarantees – the German Riester IRAs. Raimond Maurer presented work on the impact of these guarantees on consumption drawing on a quantitative life cycle consumption-portfolio choice model. He and his co-authors find that guarantees harm consumption in old age and that abolishing the guarantees from the German Riester IRAs would benefit at least 80% of the savers in their model while not altering the contributions to the IRAs. In addition, the guarantees offer only little protection against market crashes.
Paper: Dynamic Mirrlees Taxation with Non-Separable Preferences
Authors: Christian Hellwig
Speaker: Christian Hellwig
Christian Hellwig presented work on the optimal, dynamic income and savings taxation with non-separability preferences of households between consumption and work. Besides introducing a new method for analyzing dynamic incentive problems with a non-separable preference structure that could be applied to other insurance design problems, Christian Hellwig showed how the optimal savings tax design in his setup depends on heterogeneous preferences for savings and a social planner’s inequality aversion.
SESSION 3: POVERTY
Paper: Impact of gender ideology on women’s employment in immigrant and native couples
Authors: Daniela Grunow, Torsten Lietzmann
Speaker: Daniela Grunow
Daniela Grunow presented work on the impact of gender ideology on women’s employment in immigrant and native couples. Using data from the German Panel Study “Labour Market and Social Security”, she and her co-author find that women’s gender ideologies impact their likelihood of reducing work hours, but also identify an effect of joint ideology of a couple. Linking these results with differences regarding gender ideology within the German population, Daniela Grunow showed that not only immigrants of different origin differ in their attitude but that Germany itself is heterogeneous showing for example a marked East/West divide.
Authors: Ayse Imrohoroglu, Kai Zhao
Speaker: Ayse Imrohoroglu
How can we introduce homelessness into an economic model? Ayse Imrohoroglu and her co-author answered this question using a quantitative general equilibrium model with incomplete markets and heterogeneous agents who face labor income and health risks. Households decide upon housing that comes in discrete sizes and where the lowest possible size is equivalent to a homeless shelter. Using the model, Ayse Imrohoroglu presented insides about the effectiveness of several policies in reducing homelessness. Importantly, this model approach is able to assess not only exit rates out of homelessness but also take a stance on the change in entry rates.
SESSION 4: DEMOGRAPHIC CHANGE AND RETIREMENT
Paper: Social insurance implications of demographic change: Examples and policy options for France and Germany
Author: Axel Börsch-Supan
Speaker: Axel Börsch-Supan
Axel Börsch-Supan presented work on the implications of demographic change with a focus on the cases of Germany and France. Identifying population aging, the setup of the pension system, and the old-age labor market as the main problem areas for social insurance, empirical evidence on these aspects was presented for both countries. Based on this analysis an approach for a rational pension system design was presented followed by policy options.
Paper: Labor Supply and the Pension Contribution-Benefit Link
Authors: Eric French, Attila Lindner, Cormac O’Dea, Tom Zawisza
Speaker: Eric French
A higher tax burden on labor income is a labor supply disincentive and social security contributions are a large component of this tax burden in OECD countries. Yet the question remains if higher pension contributions lead to lower labor supply since they are also connected to higher future pension entitlements. Exploiting a pension reform in Poland, Eric French and co-authors provide an empirical assessment of how pension incentives affect labor supply far from retirement age. They find evidence of labor-supply responses to changes in the contribution-benefit link well in advance of retirement age with large enough magnitudes to expect some gain from tightening the contribution-benefit link on aggregate labor supply which would, however, have negative consequences on inequality.
SESSION 5: MACROECONOMICS, DEMOGRAPHIC CHANGE AND HEALTH INSURANCE
Paper: The Medical Expansion, Life-Expectancy and Endogenous Directed Technical Change
Authors: Leon Huetsch, Dirk Krueger, Alexander Ludwig
Speaker: Dirk Krueger
Dirk Krueger presented work on the relationship between health spending, life expectancy and growth. The main point of the paper is to develop a quantitative economic theory that can speak to the salient features in the data since the 19th century to modern times with the evolution of a modern health sector, and the joint upward trends in life expectancy and the aggregate health spending share.
Paper: Why aging is inducing deflation and secular stagnation
Authors: R. Anton Braun, Daisuke Ikeda
Speaker: R. Anton Braun
R. Anton Braun presented work employing a quantitative overlapping-generations model to answer the question which forces were responsible for the period of low inflation and secular stagnation in Japan prior to 2020 and to analyze if these forces will continue to put pressure on prices and economic activity. Using the demand theory of the price level, they identify aging as a quantitatively significant factor inducing downward pressure on prices, real interest rates and real GDP growth. This downward pressure is expected to continue for the next 2 decades even with fiscal and monetary reactions of the government.
SESSION 6: HEALTH AND LONG-TERM CARE INSURANCE
Paper: Optimal Portfolio Choice With Longevity, Critical Illness Insurance and Long-Term Care Insurance: A Developing Country Context
Authors: Cheng Wan, Hazel Bateman, Katja Hanewald
Speaker: Cheng Wan
Cheng Wan presented work on a model-based optimal portfolio prediction for a retiree in a developing country retirement system. The model set-up incorporates various health risks, a public insurance system and portfolio choices and was calibrated to urban China. Their results show a high annuity demand of retirees with a low pension while retirees with an average pension show a high demand for critical illness insurance. Invariant of the economic profile of the retiree, Wan and co-authors find a positive demand for long-term care insurance.
Paper: How Much Should We Value Future Health and Long-Term Care Health Services?
Author: M. Martin Boyer
Speaker: M. Martin Boyer
Is an individual’s old-age health a public good? This question and the consequences of answering this question with a “yes” was the topic of M. Martin Boyer’s talk. Assuming that there is a positive value of an elderly individual to the society, he shows that individuals discount future health services too strongly compared to the social optimum leading to too low investments in long-term care health services. This opens up the door for government intervention.
Paper: Transition costs and the optimal U.S. Social Security system
Authors: Karolos Arapakis
Speaker: Karolos Arapakis
Karolos Arapik presented a poster about his work on the optimal U.S. Social Security system and the costs associated with transitioning to this system. Using a quantitative overlapping generations model featuring aggregate and idiosyncratic risk, he studies the welfare impacts of an unanticipated and once-and-for-all pension reform. Even though the analyzed pension reform would be welfare enhancing in the long run, it implies welfare costs along the transition for those generations that have to repay the implicit debt inherited by previous generations who received more pension benefits than they contributed to the system. These transition cost in combination with the need for majority voting for the reform greatly restrict the government’s ability to move on from the current system even though it would be beneficial.
Paper: Rising Earnings Inequality and Optimal Income Tax and Social Policies
Authors: Pavel Brendler
Speaker: Pavel Brendler
How have US government preferences regarding redistribution across generations and within generations changed over the period 1980-2010? Pavel Brendler answered this question using a quantitative model with a Ramsey government that chooses income taxation and the setup of Social Security. In his work, the Ramsey government maximizes the welfare of all households alive, but with different weights according to age and educational attainment. Decomposing the observed changes in policies into the effect of preference shifts, and changes in the economic and demographic landscape, Pavel Brendler finds that the preferences of the US government have shifted towards older and more educated households. Additionally, he emphasized with his poster the need to analyze income redistribution preferences across and within generations jointly, since these two aspects interact.
Paper: Determinants and Life Cycle Effects of Survival Ambiguity
Authors: Claudio Daminato, Irina Gemmo
Speaker: Irina Gemmo
Precise beliefs regarding life expectancy are necessary for people to make sensible decisions about their retirement planning. Irina Gemmo and her co-author use survey and experimental data to analyze the uncertainty regarding individuals’ survival prospects across several demographic groups and over the life cycle. Employing their results in a calibrated life cycle model including a portfolio choice, they estimate the impact of heterogeneous ambiguity about survival risk on savings and retirement resources. This approach might help to build a bridge between the commonplace life-cycle models and empirical evidence regarding retirement savings.
Paper: Health Dynamics and Heterogeneous Life Expectancies
Authors: Richard Foltyn, Jonna Olsson
Speaker: Jonna Olsson
Jonna Olsson presented work on heterogeneous life expectancies estimated from the Health and Retirement Study for U.S. households. She and her co-author find that the estimated life expectancy differences between races are large, even when controlling for age and health. According to their estimates, a 50-year-old nonblack woman in excellent health has a 3.5-year higher life-expectancy compared to a black woman with otherwise same characteristics. Using these estimates in a life-cycle model, they find that these differences in life-expectancies lead to lower savings rates and wealth accumulation over the life cycle, but the magnitudes are too small to account for the large racial wealth gap observed in the data. Additionally, they find a substantial negative impact on the present value of expected Social Security benefits due to heterogeneity in life expectancy.
Paper: Population aging, relative prices and capital flows across the globe
Authors: Andrea Papetti
Speaker: Andrea Papetti
Population aging is, and will continue to be, one of the most pressing themes for developed economies even though there is considerable heterogeneity in the location of the economies on the aging curve. Using a multi-country two-sector overlapping generations model, Andrea Papetti analyzed the impact of this time lag in population aging between countries on the relative price of nontradables and the current account. An aging population has a higher relative demand for nontradables and a higher willingness to save. These two aspects will lead to an increase of the relative price of nontradables and a strong accumulation of net foreign asset positions by countries aging faster.