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Longevity, Working Lives, And Public Finances

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  • Jukka Lassila
  • Tarmo Valkonen

Abstract

We find that linking statutory retirement ages to life expectancy is a promising way to extend working lives and generate enough tax revenues so that generations enjoying longer lifetimes can also pay for the consequent increase in pensions and public health and long‐term care (LTC) expenditure. We use a numerical economic model, calibrated to the Finnish economy and demographics, in which mortality affects both retirement ages and per capita use of health and LTC services. Uncertainty in mortality projections and the resulting uncertainties in public finances and retirement policy effects are considered explicitly. (JEL H30, H63, H68, J11)

Suggested Citation

  • Jukka Lassila & Tarmo Valkonen, 2018. "Longevity, Working Lives, And Public Finances," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 467-482, July.
    • Handle: RePEc:bla:coecpo:v:36:y:2018:i:3:p:467-482
    DOI: 10.1111/coep.12262
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    References listed on IDEAS

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    1. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
    2. Alho, Juha A., 2002. "The Population of Finland in 2050 and Beyond," Discussion Papers 826, The Research Institute of the Finnish Economy.
    3. Jukka Lassila & Tarmo Valkonen, 2007. "The Finnish Pension Reform of 2005," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 32(1), pages 75-94, January.
    4. Alho, Juha M., 1990. "Stochastic methods in population forecasting," International Journal of Forecasting, Elsevier, vol. 6(4), pages 521-530, December.
    5. Honkatukia, Juha, 2011. "Three takes on sustainability," Research Reports P58, VATT Institute for Economic Research.
    6. Torbe M. Andersen, 2012. "Fiscal sustainability and fiscal policy targets," Economics Working Papers 2012-15, Department of Economics and Business Economics, Aarhus University.
    7. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-1180, September.
    8. Auerbach,Alan J. & Lee,Ronald D. (ed.), 2001. "Demographic Change and Fiscal Policy," Cambridge Books, Cambridge University Press, number 9780521662444.
    9. Jukka Lassila & Tarmo Valkonen & Juha M. Alho, 2011. "Assessing the sustainability of health and long-term care financing - and the usefulness of policy guidelines based on demographic forecasts," Chapters, in: Three takes sustainability. VATT Publications 58, pages 151-175, The Research Institute of the Finnish Economy.
    10. Lassila, Jukka & Määttänen, Niku & Valkonen, Tarmo, . "Linking retirement age to life expectancy – what happens to working lives and income distribution?," ETLA B, The Research Institute of the Finnish Economy, number 260.
    11. repec:zbw:bofrdp:2008_028 is not listed on IDEAS
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    Cited by:

    1. Lassila, Jukka, 2018. "Aggregate Risks, Intergenerational Risk-Sharing and Fiscal Sustainability in the Finnish Earnings-Related Pension System," ETLA Working Papers 57, The Research Institute of the Finnish Economy.
    2. Alho, Juha & Lassila, Jukka, 2022. "Assessing Components of Uncertainty in Demographic Forecasts with an Application to Fiscal Sustainability," ETLA Working Papers 92, The Research Institute of the Finnish Economy.
    3. Tarmo Valkonen, 2020. "The Finnish Pension System and Its Future Challenges," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(2), pages 92-96, March.
    4. Westerhout, Ed, 2022. "30 Years of Generational Accounting : A Critical Review," Discussion Paper 2022-021, Tilburg University, Center for Economic Research.
    5. Westerhout, Ed, 2022. "30 Years of Generational Accounting : A Critical Review," Other publications TiSEM 252a02fe-7374-499e-97c5-0, Tilburg University, School of Economics and Management.
    6. Juha Alho & Jukka Lassila, 2023. "Assessing components of uncertainty in demographic forecasts with an application to fiscal sustainability," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(7), pages 1560-1568, November.
    7. Arto Kovanen, 2022. "Population Dynamics, Macroeconomic Risks, and the Future of Pensions in Finland," Applied Economics and Finance, Redfame publishing, vol. 9(2), pages 21-41, May.
    8. Heikki Tikanmaki & Hannu Sihvonen & Janne Salonen, 2015. "Distributional Effects of the Forthcoming Finnish Pension Reform - a Dynamic Microsimulation Approach," International Journal of Microsimulation, International Microsimulation Association, vol. 8(3), pages 75-98.

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    More about this item

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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