2,601 research outputs found
Retirement Choices in Italy:What an Option Value Model Tells Us
Full text link<p>Using Italian data, we estimate an option value model to quantify the effect of financial incentives on retirement choices. As far as we know, this is the first empirical study to estimate the conditional multiple-years model put forward by Stock and Wise (1990). This implies that we account for dynamic self-selection bias. We also present an extended version of this model in which the marginal value of leisure is random. For the female sample, the model is able to predict almost perfectly the age-specific hazard rates. For the male sample, we obtain a good fit. Dynamic self-selection results in a downward bias in the estimate of the marginal utility of leisure. We perform a simulation study to gauge the effects of a dramatic pension reform. Underestimation of the value of leisure translates into sizeable over-prediction of the impact of reform. Due to lack of data, results for males should be interpreted with caution since we are not able to fully correct for dynamic self-selection bias.</p>
When you need it or when I die? Timing of monetary transfers from parents to children
Full text linkThe standard overlapping generations model assumes the ability to borrow against bequests. If this assumption is not met, it may happen that not all generations smooth their consumption over time. We prove that by allowing for inter vivos transfers in this latter situation, all generations smooth consumption, i.e. the first best solution is restored. Next, using a combination of Dutch survey and administrative data, we provide empirical support for the model's implication that parents transfer wealth when their children need to borrow out of future resources. Our findings suggest an instrumental role for inter vivos transfers as a device that generations can resort to for smoothing their consumption over time
The Importance of Financial Incentives on Retirement Choices
Full text linkThis study exploits a new dataset in order to quantify the effect of financial incentives on retirement choices. This dataset contains for the first time in Italy information on seniority. In accordance with the general finding in Gruber and Wise (2004), we find that financial incentives have an effect on retirement. The effect goes in the expected direction; when employees become eligible for pension benefits the change in financial incentives they experience is so high that their retirement probability increases in a sizable way. We also find that the procedure to impute seniority used in previous studies leads to a sizable measurement error. Due to this measurement error, the key parameters of the model are inconsistently estimated. Our sensitivity analysis suggests that the lack of appropriate information on seniority is an important reason for the unclear evidence so far obtained in retirement studies for Italy
When you need it or when I die? Timing of monetary transfers from parents to children
Full text linkThis paper investigates the timing of wealth transfers between generations. We develop an overlapping generations model in which each generation can borrow against its future income but not against expected bequest. As a result, generations relatively poorer than their parents may end up not smoothing consumption. We prove that if wealth transfers can take place earlier in life, then each generation smooths consumption despite the constraint on borrowing and the first best solution is restored. The model implies that parents transfer resources when the children are credit constrained. This implication is tested using Dutch survey data on households' intentions to make intervivos transfers matched with administrative data that allow to construct a measure of the probability of being in need of a transfer. All in all, the paper highlights the importance of intervivos transfers as a device that households can resort to in order to mitigate inter--generational wealth inequalities
Is It True Love? Altruism Versus Exchange in Time and Money Transfers
Full text linkThis paper investigates what motivates intergenerational inter-vivos time and money transfers. We consider a model in which transfers may be driven not only by altruism, but also by exchange considerations. We use data from the Survey of Health, Ageing and Retirement in Europe to discriminate between the two motives. We show that both if we consider money transfers from parents to children and time transfers from children to parents, the empirical evidence rejects pure altruism in favor of exchange. This result has important policy implications on the effectiveness of formal care provision as a substitute for informal care and on the impact of taxation on transfers
Lifetime income and old age mortality risk in Italy over two decades
Full text link<p>BACKGROUND</p><p>The evidence on the shape and trend of the relationship between (lifetime) income and old age mortality is scarce and mixed both for North American and European countries. Nationwide evidence for Italy does not exist yet.</p><p>OBJECTIVE</p><p>We investigate the shape and evolution of the association between lifetime income and old age mortality risk, referred to as the income-old age mortality gradient, for males in the 1980s and the 1990s.</p><p>METHODS</p><p>We use data drawn from an administrative pension archive and proxy individual lifetime income with pension income. We use non-standard Cox proportional hazard models, in which the positions and number of the knots in the spline function for income are determined by the data.</p><p>RESULTS</p><p>The income-old age mortality gradient is negative but weak across most of the income distribution. Its shape shows two kink points situated almost at the same percentiles of the income distribution during the 1980s and the 1990s. The widening of the gradient over time is largely explained by regional differences in mortality and income.</p><p>CONCLUSIONS</p><p>Our findings show that mortality risk decreases with income. Once regional differences are controlled for, the relative difference in mortality risk between high and low-income individuals in Italy is rather stable over time.</p>
Early-life conditions, lifetime income and mortality risk in Italy
Full text linkIn this study, we obtain insights into the impact of early-life conditions on old-age mortality in Italy. We capture cohorts' life conditions by means of mortality rates at different early-life stages and exploit exogenous variation provided by a series of abrupt mortality events which severely affected specific cohorts. We also test whether lifetime income – approximated by the amount of the pension benefit - is health protective against bad circumstances experienced in early life.
Early-life conditions have a long-lasting effect on males' mortality. Results suggest the existence of a considerable “scarring” effect: the death probability of a male born in 1932 alive at age 65 is 15% lower than that of a male born at the beginning of the XX-th century due to improved early-life conditions. For females, we do not find a significant impact of early-life conditions. We do not find evidence that income is health protective. On the contrary, we find that especially mortality of richer individuals is affected by circumstances in early life
Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands
Full text linkWe present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees’ expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variables estimates for financial knowledge, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.
Home and Mortgage Ownership of the Dutch Elderly: Explaining Cohort, Time and Age Effects
Full text linkThe relationship between home ownership of Dutch elderly households and age is strongly negative. Other studies suggest that this age gradient should be attributed to a cohort effect. In this paper we investigate where those cohort effects come from. We also observe that mortgage ownership among elderly home-owners increased considerably during the nineties. Using panel data we estimate models explaining home and mortgage ownership by age, cohort, and time effects, as well as other factors. Cohort and time effects are modelled explicitly using macro economic and housing market related variables. We find that the level of GDP per capita when the household head was young is the main factor explaining generation effects in home ownership among the elderly. After accounting for cohort effects it also appears that home ownership decreases slightly with age. Mortgage ownership among elderly home owners rose considerably during the nineties due to house price increases and due to financial innovation in the mortgage market. Cohort effects are also important. A supplementary analysis suggests that those cohort effects are due to the fact that the accidental bequest motive is becoming less important.home ownership, mortgages, cohort effects
Saving and Habit Formation: Evidence from Dutch Panel Data
No full textThis paper focuses on the role of habit formation in individual preferencesover consumption and saving. We closely relate to Alessie and Lusardi's(1997) model as we estimate a model which is based on their closed-formsolution, where saving is expressed as a function of lagged saving and otherregressors. Alternatively, we could use an Euler-equation approach (see e.g.Guariglia and Rossi (2001) and Dynan (2000)), but we will argue that thisapproach may yield spuriously negative estimates of the habit formationparameter because in surveys consumption is typically measured withconsiderable error. A second reason to use the closed form solution as abasis of the empirical model is that it embodies more information about thehabit formation model than the Euler equation. Therefore, the closed formsolution allows for a more powerful test of the validity of the habitformation model than the Euler equation approach.Habit formation; permanent income; precautionary saving.
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