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Working Papers


Yuanyuan Deng and Hugo Benítez-Silva

Abstract: Using survey and administrative data from the Medicare Current Beneficiary Survey, we analyze the effect of labor supply, health insurance coverage, and delays in Medicare enrollment on Medicare costs. We use our empirical findings to compute the average aggregate yearly savings linked to individuals working and insurance coverage that translates into Medicare being a secondary payer, at around $5.37 billion per year in the 1999-2010 period. We also quantify average aggregate yearly savings of another $10.17 billion per year, in the same time period, resulting from the delays in enrollment into the Medicare system.

Keywords: Medicare Costs, Labor Supply, Medicare Secondary Payer Effect, Delays in Medicare Enrollment


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

Researchers examining data online

Erik Hernaes, Zhiyang Jia, John Piggott and Trond Christian Vigtel.

This paper studies the effect on the labor supply decisions of senior workers of reducing the eligibility age of retirement combined with actuarial neutrality, based on one particular group of private sector workers. In the 2011 Norwegian pension reform they had a fixed pension access age of 67 replaced by a flexible access age from 62 with constant present value of benefits. In a non-linear difference-in-difference approach, exploiting the absence of earnings tests, we find no effect on labor force participation. Aggregate earnings fell, mostly driven by high earners reducing their earnings. The increased liquidity seems to facilitate phased retirement.


Keywords: Retirement; Pension; Flexibility

Elderly couple researching pension options

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

Elderly couple researching pension options online

George Kudrna and John Piggott

Abstract: This paper argues for retirement policy formulation and reforms to re-orient towards greater reliance on non-contributory means tested pensions as a primary retirement income delivery structure. These pensions will become more relevant as the number of contingent workers increases in the global north; and have the potential to reach informal workers in emerging economies who have exhausted their earnings capacity. We show that this kind of pension structure can be efficient, equitable and sustainable. If properly designed, it is especially well-suited to an ageing demographic. We briefly discuss the Australian model as an example of how well this can work.


Keywords: Pensions, retirement policy, labour market, population ageing



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.

Katja Hanewald

Katja Hanewald, Hazel Bateman, Hanming Fang and Shang Wu

Reverse mortgages provide an alternative source of retirement funding by allowing older homeowners to borrow against their home. However, a recent pilot program of reserve mortgage products in several large Chinese cities saw almost no take up. To ascertain the demand for reverse mortgages in China, we conduct and analyze two online surveys that focus respectively on homeowners aged 45-65 as potential purchasers, and on adult children in the 20-49 age group representing children of potential purchasers. We address the reported shortcomings of the pilot reverse mortgage product by testing an improved product design presented in a clear and comprehensive format. In stark contrast, we find that 89% of older Chinese homeowners would be interested in this new reverse mortgage product, and 84% of adult children would recommend such a product to their parents. Participants in both surveys reported that they would use the reverse mortgage payments to fund a more comfortable retirement and to pay for better medical treatments and aged care services. Respondents’ interest in reverse mortgages was associated with their familiarity and understanding of the product, and its perceived potential to address liquidity constraints in retirement. Health status, aged care preferences and proxies for intergenerational links were also important. Our results are contrary to the common perception of intergenerational expectations of wealth transfer in China, and provide new evidence in support of the potential development of China’s reverse mortgage market.

George Kudrna and Alan Woodland 

Private pension pillars around the world benefit from concessional tax treatments that aim to increase private retirement incomes and house- hold savings. As shown in table 14.1, most countries tax their private pensions under the “Exempt-Exempt-Taxed” (EET) regime, in which contributions and fund income are exempt from any taxation but ben- efits are treated as ordinary income and taxed progressively. An alterna- tive approach is the “Taxed-Exempt-Exempt” (TEE) regime, which allows no deductions of contributions from gross income but then applies no further tax. By contrast, the existing tax treatment applied to Australia’s superannuation (Australia’s term for private pensions) features a flat tax rate on contributions and fund income, with benefits generally tax-free. As the statutory rate of this flat tax on contributions and fund income is 15 percent,the system is concessional for most income earners compared to progressive personal income taxation.2The concessions, however, flow largely to high-income earners, as dem- onstrated by Ingles and Denniss (2009) and Australia’s Future Tax Struc- ture (AFTS) (2008, 2010). For instance, AFTS (Australia’s Future Tax Structure 2008, 22) estimates that over 37 percent of concessional con- tributions go to only those Australians whose incomes are in the top 5 percent.


Keywords: Pension, concessional tax, superannuation, tax changes, Australia


Hazel Bateman

The increasing prevalence of funded private pension systems world- wide raises questions about how retirement savings and benefits should be taxed. The three most important questions in pension taxation are: (1) At what point should pension savings be taxed? (2) Should the tax regime for pensions be integrated with personal income taxes or be sepa- rate? (3) How preferential should the taxation of pensions be? Australia’s experience with the tax treatment of private retirement savings (known in Australia as superannuation) brings considerable insight to these questions.

Pension savings can be taxed at one or more of three points—at the time of contribution, as fund earnings accrue, and/or at the time ben- efits are received. Most countries exempt (E) contributions and fund earnings from taxation and tax (T) benefits under a postpaid expendi- ture tax (EET) regime. In most cases, the benefits are treated as ordinary income and taxed progressively under the personal income tax sched- ule. Some countries tax contributions and fund earnings under a com- prehensive income tax (TTE) regime. Alternatives include a prepaid expenditure tax (TtE) under which contributions are taxed, fund earn- ings are exempt (except for excess returns),and benefits are exempt, or a hybrid approach (TTT) whereby pension savings are taxed at all three points.


Keywords: Pension, savings, income tax, retirement savings, Australia