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Health, Longevity and Pension Reform

Author

Listed:
  • Laun, Tobias

    () (Department of Economics)

  • Markussen, Simen

    () (Ragnar Frisch Centre for Economic Research)

  • Vigtel, Trond Christian

    () (Ragnar Frisch Centre for Economic Research)

  • Wallenius, Johanna

    () (Department of Economics, Stockholm School of Economics,)

Abstract

In this paper, we study alternative pension reforms designed to achieve fiscal sustainability in the face of demographic change. We are particularly interested in the heterogeneous effects across demographic groups, as improvements in health and longevity have not been uniform across the population. To this end, we develop a dynamic, structural life cycle model of heterogeneous agents who face health, mortality and income risk. We consider the following policy reform measures: (1) increasing the early access age to pensions, (2) raising income taxes, (3) lowering pension benefits and (4) lowering pension and disability benefits. We find that, of the considered policies, proportionally lowering pension and disability benefits results in the highest average welfare and the lowest degree of inequality. It is also successful at boosting employment, particularly among the less educated.

Suggested Citation

  • Laun, Tobias & Markussen, Simen & Vigtel, Trond Christian & Wallenius, Johanna, 2018. "Health, Longevity and Pension Reform," Working Paper Series 2018:9, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uunewp:2018_009
    as

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    References listed on IDEAS

    as
    1. Daniel Kemptner, 2013. "Health-Related Life Cycle Risks and Public Insurance," Discussion Papers of DIW Berlin 1320, DIW Berlin, German Institute for Economic Research.
    2. Gustman, Alan L. & Steinmeier, Thomas L., 2001. "How effective is redistribution under the social security benefit formula?," Journal of Public Economics, Elsevier, vol. 82(1), pages 1-28, October.
    3. Haan, Peter & Prowse, Victoria, 2014. "Longevity, life-cycle behavior and pension reform," Journal of Econometrics, Elsevier, vol. 178(P3), pages 582-601.
    4. Hernæs, Erik & Markussen, Simen & Piggott, John & Røed, Knut, 2016. "Pension reform and labor supply," Journal of Public Economics, Elsevier, vol. 142(C), pages 39-55.
    5. repec:pal:gpprii:v:42:y:2017:i:3:d:10.1057_s41288-017-0057-0 is not listed on IDEAS
    6. Josep Pijoan-Mas & José-Víctor Ríos-Rull, 2014. "Heterogeneity in Expected Longevities," Demography, Springer;Population Association of America (PAA), vol. 51(6), pages 2075-2102, December.
    7. 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.
    8. Sigurd Mølster Galaasen, 2017. "Pension reform disabled," Working Paper 2017/20, Norges Bank.
    9. Tobias Laun & Johanna Wallenius, 2016. "Social Insurance and Retirement: A Cross-Country Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 72-92, October.
    10. repec:eee:eecrev:v:101:y:2018:i:c:p:512-527 is not listed on IDEAS
    11. Courtney Coile & Jonathan Gruber, 2007. "Future Social Security Entitlements and the Retirement Decision," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 234-246, May.
    12. Alan J. Auerbach & Kerwin K. Charles & Courtney C. Coile & William Gale & Dana Goldman & Ronald Lee & Charles M. Lucas & Peter R. Orszag & Louise M. Sheiner & Bryan Tysinger & David N. Weil & Justin W, 2017. "How the Growing Gap in Life Expectancy May Affect Retirement Benefits and Reforms," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(3), pages 475-499, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Life cycle; Retirement; Disability insurance; Health;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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