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Working Papers


Len Patrick Dominic M. Garces, Jovana Kolar, Michael Sherris, and Francesco Ungolo


Abstract: In this paper, we investigate the dynamics of age-cohort survival curves under the assumption that the instantaneous mortality intensity is driven by an affine jump-diffusion (AJD) process. Advantages of an AJD specification of mortality dynamics include the avail- ability of closed-form expressions for survival probabilities afforded by an affine mortality specification and the ease with which we can incorporate sudden positive and negative shocks in mortality dynamics, reflecting events such as wars, pandemics, and medical advancements. As we are interested in modelling the evolution of mortality rates, we propose a state-space approach to calibrate the parameters of the affine mortality process. This ensures consistent survival curves in the sense that forecasts of survival probabilities have the same parametric form as the fitted survival curves. As the resulting state-space model is non-Gaussian due to the presence of jumps, we apply and assess a particle filter-based Markov chain Monte Carlo approach to estimate the model parameters. We illustrate our methodology by fitting one- factor Cox-Ingersoll-Ross and Blackburn-Sherris mortality models with asymmetric double exponential jumps to historical age-cohort mortality data from USA. We find that these one-factor models with jumps have good in-sample fit, but their forecasting performance suggests the need for additional latent factors to improve the accuracy of forecasts.

Key words: Affine mortality models, affine jump-diffusion, age-cohort mortality rates, particle filter, particle Markov chain Monte Carlo


Tom Wilson and Jeromey Temple

Abstract: The recent release of preliminary rebased Estimated Resident Populations for 2021 by the Australian Bureau of Statistics (ABS) provides updated populations on which to base new population projections for Australia. New projections are necessary because of the disruption to demographic trends caused by Covid, rendering even quite recently produced projections out-of-date. This paper presents new population projections for Australia and the states and territories for the period 2021-2041. The paper describes the input data used, projection assumptions made, and an outline of the projection model. Key features of projected population ageing are presented, followed by brief projection profiles of Australia and the states and territories. Population projections data is available at the Centre of Excellence in Population Ageing Research (CEPAR) Population Ageing Futures Data Archive (https://cepar.edu.au/cepar-population-ageing-projections)

Key words: Population projections; population ageing; Australia; States and Territories

This work was supported by the Australian Research Council Centre of Excellence in Population Ageing Research (project number CE1101029).


Dr Miguel Olivo-Villabrille

Arezou Zaresani and Miguel Olivo-Villabrille

Abstract: Exploiting a quasi-natural experiment and using administrative data, we examine the effects of the return-to-work policies’ clawback regime in Disability Insurance (DI) programs on beneficiaries’ labor supply decisions, allowing them to collect reduced DI payments while working. We compare two return-to-work policies: one with a single rate clawback regime and another featuring a more generous clawback regime, where a reform further increased its generosity. The reform caused an increase in the mean labor supply: beneficiaries who already work, work more, and those who did not work started working. The effects are heterogeneous by beneficiaries’ characteristics, and the increase is driven mainly by top percentiles of earnings. Findings suggest an essential role for the clawback regime in return-to-work policies and targeted policies to increase the labor supply in DI programs.

Keywords: disability insurance; clawback rate; return-to-work policy, financial incentives; labor supply.



Yafei Si, Katja Hanewald, Shu Chen, Bingqin Li, Hazel Bateman and John R. Beard



Background: Maintaining and optimising intrinsic capacity (IC) across a person’s life course is a core component of the World Health Organization’s model of healthy ageing. However, the contribution of cumulative health inequalities over time to subtle changes in IC in late life is not well understood. 

Methods: We included 21,783 participants aged 45+ from the China Health and Retirement Longitudinal Study and calculated a validated prognostic value of IC. We included eleven early-life factors to investigate their direct influence on IC over thirty years later and cumulative influence through four current socioeconomic factors. We used multivariable linear regression and concentration index decomposition to investigate the contributions of each determinant to IC inequalities. Mediation analysis identified the direct and cumulative contribution of early-life factors. 

Results: Participants with an advantaged environment in childhood and a higher current socioeconomic position had a significantly higher IC score. This inequality was greatest for cognitive capacity and sensory capacity. Overall, early-life factors directly explained 13.92% (95% CI: 12.07% to 15.77%) of IC inequalities, while 28.57% (95% CI: 28.19% to 28.95%) of IC inequalities were explained through the cumulative effects of socioeconomic inequalities over a person’s life course. 

Conclusion: In China, unfavourable early-life factors appear to directly decrease late-life health status, particularly cognitive and sensory capacities rather than locomotor functioning, psychological capacity or homeostasis, and these effects are exacerbated by the cumulative socioeconomic inequalities over a person’s life course. Interventions in early life and subsequently across the life course may be effective in reducing these disparities. 

Keywords: intrinsic capacity, healthy ageing, life course inequality, cognition, China

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L.I. Dobrescu, A. Shanker, H. Bateman, B.R. Newell, and S. Thorp

Abstract: How do people save over their lifetime? Using a dynamic lifecycle model of saving and portfolio choice featuring risky labor income, housing, and safe and risky financial assets inside and outside pension plans with comprehensive choice architecture, we examine the behavior of members of an industry-wide retirement fund to assess how standard saving motives, pension defaults, investment returns, preferences and frictions interact to drive lifetime savings across major asset classes. Our results show considerable heterogeneity in what motivates people how to save. First, we find that financial and housing assets are largely driven by consumption smoothing motives. While these motives also affect plan choices, their role in pension accumulation is more limited due to default switching costs. Removing such costs, on the other hand, encourages pension savings at the expense of financial wealth but not of housing. In fact, we find higher pension assets to drive up housing wealth throughout the lifecycle, as people - anticipating a wealthier retirement and to avoid potentially larger adjustment costs later in life - lock in higher housing investments early on. Second, being luxury goods, bequest motives lead to higher DC take-up and riskier portfolios, but only to a modest mid-life financial savings boost. Third, precautionary savings that insure against wage risks have similar plan effects to bequests, although they do not translate in any wealth dynamic. Finally, removing costless redraws on mortgages leads to higher financial savings, again displacing pension balances considerably more than housing wealth.

Keywords: lifetime savings, portfolio choice, income risk, defaults, method of moments

cepar award
Chung Tran and Sebastian Wende
Abstract: A dividend imputation system is designed to address double taxation of capital income by allowing companies to pass profit taxes paid at the corporate level to shareholders in form of franking tax credits. In this paper, we study implications of divided imputation in a small open economy model with firm heterogeneity and an internationally integrated capital market. Our analysis indicates that dividend imputation has opposing effects on investment and capital accumulation. On one hand, it mitigates the adverse effects of double taxation and induces more saving and investment; on other hand, it raises the cost of investment for firms that are not fully imputed, which subsequently results in less investment. Moreover, different tax treatments for resident and foreign investors amplify frictions in reallocation of capital across firms, which prevents inflows of foreign capital from fully offsetting the shortage of domestic savings. International investors are not marginal investors in our small open economy setting. Overall, the net effect on capital accumulation is analytically ambiguous, depending on which force is dominant. Our quantitative results indicate that the positive force is dominant and removing dividend imputation leads to decreases in domestic savings, aggregate capital and output. Interestingly, the overall government transfers, while tax burdens are shifted towards high income households and foreign investors.
Keywords: Double taxation; Franking tax credit; Firm heterogeneity; Overlapping generations; Open economy; Dynamic general equilibrium; Welfare.
Elderly couple researching pension options

Ricky Kanabar and Adriaan Kalwij

Abstract: We examine individuals’ retirement behaviour in response to changes in the State Pension  eligibility age introduced in various Pension Acts in the UK. The findings show the probability of retirement increases sharply once individuals become eligible for State Pension, by 40 pp and 34 pp for men and women respectively. We find no empirical support for men or women adjusting their expected retirement age upwards in response to an increase in the SP eligibility age. Our findings suggest that whilst changes in the State Pension eligibility age are important for individual’s actual retirement, they do not induce individuals to revise their expected retirement age and this can result in suboptimal retirement planning. The latter can be problematic for those who rely disproportionately on State Pension as their main source of income and, arguably, targeted communication campaigns are needed to improve retirement planning.

Keywords: Retirement, Expectations, United Kingdom Household Longitudinal Study


Shu Chen, Yafei Si, Katja Hanewald, Bingqin Li, Hazel Bateman, Xiaochen Dai, Chenkai Wu, and Shenglan Tang


Background: Measuring chronological age alone does not provide sufficient context for understanding the impact of ageing on societal resource planning. The burden of age-related diseases (ARDs) reflects age-related morbidity and mortality at the population level, which unveils the underlying health burden of ageing. The current study aims to measure the ARD burden and its disparities at subnational level of China, a rapidly ageing country with regional imbalances in economic and health development, and assess the impact of health resource allocation on this burden.

Methods: We used the longitudinal data collected from the Global Burden of Diseases, Injuries, and Risk Factors Study (GBD) 2016 and 2019 to measure the ARD burden in 31 provinces in mainland China, and from China Statistical and Health Statistical Yearbooks for health resources and socio-economic indicators from 2010 to 2016. We first identified the ARDs, defined as diseases with incidence rates that increased quadratically with age, and calculated the burden as the sum of the disability-adjusted life-years (DALYs) of the ARDs. We further compared the disparities in the ARD burden by province, sex, and disease group, based on the ARD burden of non-communicable diseases (NCDs). The ARD burden-adjusted age for each province was also calculated by assuming each province shared the same age-specific burden rate as the national average. Historical changes in burden between 1990 and 2016 were assessed after standardising the age structure. Total health expenditures per capita, total health professional density, licensed doctor density, and licensed nurse density were used as proxy indicators for health resources. Panel data analysis approach was used to assess the impact of these indicators on the burden of ARDs from 2010 to 2016 based on multivariate regression models.

Findings: NCDs accounted for over 90% of China’s total ARD burden in 2019. There were significant regional disparities: the rate of ARD burden was lowest in the south-eastern coast provinces, followed by the central provinces, and trailed by the north-eastern and western provinces. In 2016, the ARD burden-adjusted ages of Shanghai, Beijing, and Zhejiang were the youngest, at 30·86, 30·90 and 36·21 years, respectively. In contrast, the respective ARD burden- adjusted ages of Sichuan, Heilongjiang, and Chongqing were 66·39, 66·14, and 62·98. After standardising the age structure, Tibet, Qinghai, Guizhou, and Xinjiang had the highest burden of ARDs and oldest ARD burden-adjusted age. Males are disproportionately affected by ARDs, with burden rate 70% higher than females. China’s overall age-standardised ARD burden has been decreasing since 1990. The largest decline was observed in the eastern provinces, followed by the central and western provinces. However, the burden rate of neurological disorders has continued to increase, albeit only by a small amount. Panel regression results showed increasing either health expenditures or health workforce density could not significantly lower the ARD burden. However, the existing urban-rural gap in health workforce density was positively associated with a consistent increase in the ARD burden. A 100% increase in the urban-rural ratio in total health professional density, licensed doctor density, and licensed nurse density led to 2·55% (p=0·09; 95% CI: -0·42, 5·53), 2·29% (p=0·07; 95% CI: -0·24, 4·80), and 2.21% (p=0·08; 95% CI: -0·31, 4·73) increases in the ARD burden respectively, ceteris paribus.

Interpretation: Older demographic structure does not necessarily mean higher ageing-related health burden. Resource planning for an ageing society should consider the burden of ARDs. In China, concerted efforts should be made to reduce the ARDs burden and its disparities, especially among western provinces which face greatest health threat due to future ageing. Continued investment in health is useful. Particularly, health workforce supply should be deliberately biased toward rural areas in western provinces.


Mike Sherris CEPAR

Mengyi Xu, Jennifer Alonso Garcia, Michael Sherris, and Adam W. Shao

Abstract: We study the impact of housing wealth and individual preferences on demand for annuities and long-term care insurance (LTCI). We build a multi-state lifecycle model that includes longevity risk and health shocks. The preference is represented by a recursive utility function that separates risk aversion and elasticity of intertemporal substitution (EIS). When health shocks are considered, a higher level of risk aversion lowers the annuity demand, while a lower level of the EIS has the opposite effect. The impact diminishes with a weaker bequest motive, more liquid wealth, or access to LTCI, all of which increase the demand for annuities. The presence of home equity can enhance annuity demand, but the enhancement is marginal when the LTCI is available. The presence of home equity has a crowding-out effect on LTCI demand, and the effect is strengthened by a lack of bequest motives or a lower degree of risk aversion. The cash poor but asset rich may demand more LTCI coverage than their renter counterparts to preserve bequests. When both life annuities and the LTCI are available, we find that the product demand is robust to changes in risk aversion and the EIS, providing insights into product designs that bundle annuities and LTCI.

Keywords: Recursive utility, Housing, Life annuities, Long-term care insurance, Lifecycle model