Savings after Retirement: A Survey by Mariacristina De Nardi, Eric French, John Bailey Jones :: SSRN

December 7, 2016

The saving patterns of retired US households pose a challenge to the basic life-cycle model of saving. The observed patterns of out-of-pocket medical expenses, which rise quickly with age and income during retirement, and heterogeneous life span risk can explain a significant portion of US saving during retirement. However, more work is needed to distinguish these precautionary saving motives from other motives, such as the desire to leave bequests. Progress toward disentangling these motivations has been made by matching other features of the data, such as public and private insurance choices. An improved understanding of whether intended bequests left to children and spouses are due to altruism, risk sharing, exchange motivations, or a combination of these factors is an important direction for future research.

Source: Savings after Retirement: A Survey by Mariacristina De Nardi, Eric French, John Bailey Jones :: SSRN


Explaining the Rise in Educational Gradients in Mortality by David M. Cutler, Fabian Lange, Ellen Meara, Seth Richards-Shubik, Christopher J. Ruhm :: SSRN

December 6, 2016

The long-standing inverse relationship between education and mortality strengthened substantially later in the 20th century. This paper examines the reasons for this increase. We show that behavioral risk factors are not of primary importance. Smoking has declined more for the better educated, but not enough to explain the trend. Obesity has risen at similar rates across education groups, and control of blood pressure and cholesterol has increased fairly uniformly as well. Rather, our results show that the mortality returns to risk factors, and conditional on risk factors, the return to education, have grown over time.

Source: Explaining the Rise in Educational Gradients in Mortality by David M. Cutler, Fabian Lange, Ellen Meara, Seth Richards-Shubik, Christopher J. Ruhm :: SSRN


Health Care Expenditure and Income: A Global Perspective by Badi H. Baltagi, Raffaele Lagravinese, Francesco Moscone, Elisa Tosetti :: SSRN

December 6, 2016

This paper investigates the long-run economic relationship between health care expenditure and income in the world using data on 167 countries over the period 1995-2012, collected from the World Bank data set. The analysis is carried using panel data methods that allow one to account for unobserved heterogeneity, temporal persistence, and crosssection dependence in the form of either a common factor model or a spatial process. We estimate a global measure of income elasticity using all countries in the sample, and for sub-groups of countries, depending on their geo-political area and income. Our findings suggest that at the global level, health care is a necessity rather than a luxury. However, results vary greatly depending on the sub-sample analysed. Our findings seem to suggest that size of income elasticity depends on the position of different countries in the global income distribution, with poorer countries showing higher elasticity.

Source: Health Care Expenditure and Income: A Global Perspective by Badi H. Baltagi, Raffaele Lagravinese, Francesco Moscone, Elisa Tosetti :: SSRN


Gender, Marriage, and Life Expectancy by Margherita Borella, Mariacristina De Nardi, Fang Yang :: SSRN

December 1, 2016

Wages and life expectancy, as well as labor market outcomes, savings, and consumption, differ by gender and marital status. In this paper we compare the aggregate implications of two dynamic structural models. The first model is a standard, quantitative, life-cycle economy, in which people are only heterogenous by age and realized earnings shocks, and is calibrated using data on men, as typically done. The second model is one in which people are also heterogeneous by gender, marital status, wages, and life expectancy, and is calibrated using data for married and single men and women. We show that the standard life-cycle economy misses important aspects of aggregate savings, labor supply, earnings, and consumption. In contrast, the model with richer heterogeneity by gender, marital status, wage, and life expectancy matches the observed data well. We also show that the effects of changing life expectancy and the gender wage gap depend on marital status and gender, and that it is essential to not only model couples, but also the labor supply response of both men and women in a couple.

Source: Gender, Marriage, and Life Expectancy by Margherita Borella, Mariacristina De Nardi, Fang Yang :: SSRN


The Return to Education in Terms of Wealth and Health by Holger Strulik :: SSRN

November 8, 2016

This study presents a new view on the association between education and longevity. In contrast to the earlier literature, which focused on inefficient health behavior of the less educated, we investigate the extent to which the education gradient can be explained by fully rational and efficient behavior of all social strata. Specifically, we consider a life-cycle model in which the loss of body functionality, which eventually leads to death, can be accelerated by unhealthy behavior and delayed through health expenditure. Individuals are heterogeneous with respect to their return to education. The proposed theory rationalizes why individuals equipped with a higher return to education chose more education as well as a healthier lifestyle. When calibrated for the average male US citizen, the model motivates about 50% percent of the observable education gradient by idiosyncratic returns to education, with causality running from education to longevity. The theory also explains why compulsory schooling has comparatively small effects on longevity and why the gradient gets larger over time through improvements in medical technology.

Source: The Return to Education in Terms of Wealth and Health by Holger Strulik :: SSRN


Public Health Insurance and Household Portfolio Choices: Unraveling Financial ‘Side Effects’ of Medicare by Marco Angrisani, Vincenzo Atella, Marianna Brunetti :: SSRN

November 4, 2016

Large, unpredictable and not fully insurable health-care costs represent a source of background risk that might deter households’ financial risk taking. Using panel data from the Health and Retirement Study and fixed-effects estimation, we test whether universal health insurance, like Medicare for over-65 Americans, shields against this risk promoting stockholding. Households in poor health, who face a higher risk of medical expenses, are less likely to hold stocks than their healthier counterparts. Yet, this gap is mostly eliminated by Medicare eligibility. Notably, the offsetting is primarily experienced by households without private health insurance over the observation period.

Source: Public Health Insurance and Household Portfolio Choices: Unraveling Financial ‘Side Effects’ of Medicare by Marco Angrisani, Vincenzo Atella, Marianna Brunetti :: SSRN


An Overview of the Pension/OPEB Landscape by Alicia H. Munnell, Jean-Pierre Aubry :: SSRN

October 29, 2016

It is impossible to discuss municipal finance without considering the cost of pensions and other post-retirement employee benefits (OPEB), largest of which is retiree health insurance. These costs have received enormous press coverage, usually incorporating sweeping generalities about the burden of employee post-retirement benefits for the nation as a whole. Much is made of the bankruptcies in Vallejo, California (2008), Prichard, Alabama (2010), Central Falls, Rhode Island (2011), Stockton, California (2015), and Detroit, Michigan (2015). At the state level, the pension situation in Illinois, New Jersey, and Connecticut is often described as typical. No one mentions Delaware, Florida, Georgia, Tennessee, and North Carolina – states that have done a good job of providing reasonable benefits, paying their required contributions, and accumulating assets. The point is that the picture at the state and local level is extremely heterogeneous, so it is crucial to look at the numbers state by state and locality by locality.

This paper provides a comprehensive accounting of pension and OPEB liabilities for state and local governments and the fiscal burden that they pose. The analysis includes plans serving more than 800 entities: 50 states, 178 counties, 173 major cities, and 415 school districts related to the sample of cities and counties. The analysis apportions the liabilities of state-administered cost-sharing plans to participating local governments for a more accurate picture of which governmental entity is actually responsible for funding pension and OPEB liabilities. The cost analysis calculates, separately, pension and OPEB costs as a percentage of own-source revenue for states, cities, and counties. It then combines pension and OPEB costs to obtain the overall burden of these programs. Finally, it adds debt service costs to provide a comprehensive picture of government revenue commitments to long-term liabilities.

Source: An Overview of the Pension/OPEB Landscape by Alicia H. Munnell, Jean-Pierre Aubry :: SSRN