Working Papers

Anca-Stefania Jijiie, Jennifer Alonso-García and Séverine Arnold (-Gaille)

Abstract: Many OECD countries have addressed the issue of increased longevity by mainly increasing the retirement age. However, this kind of reforms may lead to substantial transfers from those with shorter lifespans to those that will live longer than the average, as they do not necessarily take into account the socio-economic differences in mortality. The contribution of our paper is therefore twofold. Firstly, we illustrate how both a Defined Benefit and a Notional Defined Contribution Pay-As-You-Go scheme can put the lower social economic classes at a disadvantage, when compared to the actuarially fair pensions. In contrast to that, higher classes experience a gain. This is due to the fact that mortality rates per socio-economic class are not considered by either scheme. Consequently, we propose a model that determines the parameters for each scheme and class which would render the pensions fairer even when no socio-economic mortality differences are considered.

Keywords: retirement age, pay-as-you-go, public pensions, adequacy, fairness, class-specific parameters

Sarah Kaakai, Héloïse Labit Hardy, Séverine Arnold (-Gaille) and Nicole El Karoui

A growing number of studies indicate a widening of socioeconomic inequalities in mortality over the past decades. It has therefore become crucially important to understand the impact of heterogeneity and its evolution on the future mortality of heterogeneous populations. In particular, recent developments in multi-population mortality have raised a number of questions, among which is the issue of evaluating cause-of-death reduction targets set by national and international institutions in the presence of heterogeneity. The aim of this paper is to show how the study of the population data and the population dynamics framework contribute to addressing these issues, by providing a new viewpoint on the evolution of aggregate mortality indicators in the presence of heterogeneity. Our findings rely on two unique datasets on the English population and cause-specific number of deaths by socioeconomic circumstances, over the period 1981-2015. The analysis of the data first highlights the complexity of recent demographic developments, characterized by significant composition changes in the population, with considerable variations according to the age class or cohort, along with a widening of socioeconomic inequalities. We then introduce a dynamic framework for studying the impact of composition changes on the mortality of the global population. In particular, we are interested in quantifying the impacts of cause-of-death mortality reduction in comparison with changes of composition in a heterogeneous population. We show how a cause of death reduction could be compensated for in the presence of heterogeneity, which could lead to misinterpretations when assessing public policies impacts and/or for the forecasting of future trends.

Keywords: Population Dynamics, Deprivation, Heterogeneity, Cause-of-Death Mortality, Cohort Effect

Shang Wu, Hazel Bateman, Ralph Stevens and Susan Thorp

We examine stated preferences for long-term care insurance that pays extra income instead of reimbursing care costs. Our results show that long-term care income insurance is likely to provide two important benefits to aging societies. First, it can facilitate flexible, informal, long-term care – seniors who plan to rely on family members for extensive care find income insurance particularly attractive. Second, it can enhance risk-pooling – if long-term care income insurance were available, many seniors would release funds set aside to self-insure against the risk of needing long-term care to purchase additional longevity insurance. Our results also rule out adverse selection into the long-term care income insurance product on objective risk factors. However, participants who subjectively rate themselves at higher risk of needing long-term care will select into insurance, indicating either adverse selection that is based on private information or subjective mismeasurement of future care costs.

Keywords: Long-term care insurance; aged care; informal care; retirement incomes; annuity experiment

Chung Tran and Nabeeh Zakariyya

We study the progressivity of Australia's personal income tax system after the introduction of a New Tax System (Goods and Services Tax) Act 1999. We use two data sets: administrative data from Australian Tax Office (ATO) 2004-16 and survey data from the Household Income and Labour Dynamics in Australia (HILDA) survey 2001-16. We first document the distributions of income and tax liabilities, properties of the joint distributions of taxes paid and income, and discuss how taxes are varied across households and over time. We next provide estimates of tax progressivity using two approaches: one based on tax liability progression and one based on tax liability distribution relative to income distribution. The result based on the tax progression approach implies a significant decline in the average level of tax progressivity since 2004. Meanwhile, the result based on the tax distribution approach indicates a tax progressivity cycle with a modest decline up to 2006, then a sharp increase until 2010, and a slight decline thereafter. The personal income tax cuts for all taxpayers in the early 2000s and the introduction of tax offset for low income earners (LITO) are main driving forces. Moreover, the evolution of income distribution and interactions between income distribution and bracket creep strongly affect the overall progressivitiy level of Australia's income tax system. Hence, our findings provide insights into the dynamics of income adn tax progressivity, and a new reference for public debated on tax reform in Australia. 
Keywords: Taxation, progressiveness, income dynamics, inequality, parametric tax function, Suits index, Kakwani index.