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Working Papers


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.


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. 

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.
Financial growth

Hazel Bateman, Ralph Stevens, Jennifer Alonso Garcia and Eduard Ponds

Using an online experimental survey we investigate perception (in terms of understanding, riskiness and control) and valuation (elicited using iterative multiple price lists) of lifetime annuities relative to flexible drawdown products. We find that for those participants who are engaged with the experimental tasks, information provision and an online calculator can substantially reduce or eliminate behavioral drivers of the complex task of valuation of annuities. Providing balanced information and multiple opportunities to learn about the key features of the products, including impact of potential outcomes, narrows the gap between the willingness to pay and willingness to accept, and, offsets the effects of low financial capability, information framing and real-world institutional settings.

Financial independence

Juergen Jung and Chung Tran

We study the optimal progressivity of a personal income tax system in an environment where individuals are exposed to idiosyncratic shocks to health and labor productivity over the lifecycle. Our results, based on a dynamic general equilibrium model calibrated to the US economy, indicate that accounting for health risk substantially aects the social insur- ance/redistribution role of a progressive income tax system. When health risk is present but access to health insurance is limited, the optimal income tax system is more progressive in order to provide more social insurance/redistribution to unhealthy low income individuals. However, when more inclusive health insurance systems are considered, such as Medicare for all, then the optimal level of tax progressivity decreases signicantly. Importantly, when health expenditure risk is eliminated, the optimal income tax progressivity becomes more similar to the optimal progressivity level in previous studies using models with income risk only.


Hanming Fang and Jin Feng

A detailed overview of the current state of the Chinese Pension System, as well as its development, its problems and some ideas for future reforms.

Mother and daughter

Yi Chen and Hanming Fang

Family planning plays a central role in contemporary population policies. However, little is known about its long-term consequences in old age because of the identification challenge. In this study, we examine how family planning affects the quality of life of the Chinese elderly. The direction of the effect is theoretically unclear. On the one hand, having fewer children allows parents to reallocate more resources to themselves, improving their well-being. On the other hand, having fewer children also leads to less care and companionship from children in old age. To empirically probe the effect of family planning, we identify the causal impact by exploiting the provincial heterogeneity in implementing the “Later, Longer, Fewer” policies in the early 1970s. We find that the policies greatly reduced the number of children born to each couple by 0.85. Parents also receive less support from children in terms of living arrangements, inter vivos transfers, and emotional support. Finally, we find that family planning has drastically different effects on elderly parent's physical and mental well-being. Whereas parents who are more exposed to the family planning policies consume more and enjoy slightly better physical health status, they report more severe depression symptoms. Our study calls for greater attention to the mental health status of the Chinese elderly.

Monetary growth

Jennifer Alonso Garcia, Hazel Bateman, Johan Bonekamp, Arthur van Soest and Ralph Stevens

We investigate the importance of alternative motives for choosing a saving and consumption trajectory after retirement. Using an online experimental survey, we elicit the impact on advised spending patterns and underlying saving motives of alternative retirement drawdown designs, comprising different combinations of annuity income and wealth, and of major life events such as becoming frail or losing a spouse. We find that individuals' saving motives are revised in anticipation of major life events. They are less responsive to variation in `experimental' retirement drawdown arrangements, remaining aligned to prevailing institutional arrangements. Our results suggest that the main explanations for the widespread behaviour of retirees to hold onto their wealth are the desire to hold precautionary savings for health and other unforeseen expenses, facilitating an intra-household bequest, and making it possible to enjoy life now as well as later.

Keywords: consumption smoothing, asset decumulation, saving motives, pension design