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Micro simulations on the effects of ageing-related policy measures

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  • van Sonsbeek, Jan-Maarten

Abstract

In the Netherlands, like in most OECD-countries, the ageing of the population endangers the sustainability of public finances. In this paper a dynamic micro simulation model is used for calculating the financial and economic implications of the ageing problem and the policy measures considered. The model uses micro datasets of all Dutch pensions and pension entitlements. The retirement decision is modelled by using an option value approach. First, the paper discusses the baseline scenario of unchanged policies. The micro simulation results differ from previous macro CGE results. The state pension costs rise less sharply than the number of pensioners. Also the micro simulation model is used to analyse the redistributive character of the Dutch pension system, both through differences in pension entitlements and through differences in life expectancy, for different subgroups. The retirement decision is analysed with an option value based behavioural model. Secondly, the paper discusses the effects of five policy measures aimed at reducing the state pension costs and the sustainability gap: abolishment of the partner allowance (a measure that is already decided about), raising the retirement age from 65 to 67Â years of age, introduction of a flat rate state pension at the same level as the current pension for partners of a couple, raising the taxation of wealthier pensioners by abolishing their tax exemption and introduction of a flexible retirement window with a high accrual to reward later retirement. For each measure, the budgetary effects, labour participation effects and redistributive effects are quantified and assessed.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 5 (September)
Pages: 968-979

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:968-979

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Micro simulation Ageing Pensions Retirement;

References

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  1. Courtney Coile, 2003. "Retirement Incentives and Couples' Retirement Decisions," NBER Working Papers 9496, National Bureau of Economic Research, Inc.
  2. Baroni, Elisa, 2007. "Pension Systems and Pension Reform in an Aging Society. An Introduction to the Debate," Arbetsrapport 2007:6, Institute for Futures Studies.
  3. Voňková, Hana & van Soest, Arthur, 2009. "How Sensitive Are Retirement Decisions to Financial Incentives: A Stated Preference Analysis," IZA Discussion Papers 4505, Institute for the Study of Labor (IZA).
  4. Giovanni Mastrobuoni, 2005. "Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities," Carlo Alberto Notebooks 33, Collegio Carlo Alberto, revised 2006.
  5. Kyrre Stensnes & Nils Martin Stølen, 2007. "Pension Reform in Norway. Microsimulating effects on government expenditures, labour supply incentives and benefit distribution," Discussion Papers 524, Research Department of Statistics Norway.
  6. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1995. "Why are Retirement Rates So High at Age 65?," NBER Working Papers 5190, National Bureau of Economic Research, Inc.
  7. Disney Richard, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR & CES & MSH, vol. 19(39), pages 267-311, 07.
  8. Peichl, Andreas, 2008. "The Benefits of Linking CGE and Microsimulation Models: Evidence from a Flat Tax Analysis," IZA Discussion Papers 3715, Institute for the Study of Labor (IZA).
  9. Hielke Buddelmeyer & John Freebairn & Guyonne Kalb, 2006. "Evaluation of Policy Options to Encourage Welfare to Work," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(3), pages 273-292, 09.
  10. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
  12. Amy Finkelstein & James Poterba, 2000. "Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market," NBER Working Papers 8045, National Bureau of Economic Research, Inc.
  13. Kühntopf, Stephan & Tivig, Thusnelda, 2008. "Early retirement in Germany: Loss of income and lifetime?," Thuenen-Series of Applied Economic Theory 85, University of Rostock, Institute of Economics.
  14. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  15. van Sonsbeek, J.M. & Gradus, R.H.J.M., 2006. "A microsimulation analysis of the 2006 regime change in the Dutch disability scheme," Economic Modelling, Elsevier, vol. 23(3), pages 427-456, May.
  16. Jonathan F. Pingle, 2006. "Social Security's delayed retirement credit and the labor supply of older men," Finance and Economics Discussion Series 2006-37, Board of Governors of the Federal Reserve System (U.S.).
  17. Heikki Oksanen, 2004. "Pension reforms: an illustrated basic analysis," European Economy - Economic Papers 201, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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Citations

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Cited by:
  1. Marcin Bielecki & Karolina Goraus & Jan Hagemejer & Joanna Tyrowicz, 2014. "The Sooner The Better - The Welfare Effects of the Retirement Age Increase Under Various Pension Schemes," Working Papers 2014-12, Faculty of Economic Sciences, University of Warsaw.
  2. Courtioux, Pierre & Gregoir, Stéphane & Houeto, Dede, 2014. "Modelling the distribution of returns on higher education: A microsimulation approach," Economic Modelling, Elsevier, vol. 38(C), pages 328-340.

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