a theory of socio economic disparities in health over the life cycle motivated by the observation that medical care explains only a relatively small part of the ses health gradient we present a life cycle model that incorporates several additional behaviours that potentially explain jointly a large part of observed disparities as a result the model provides not only a conceptual framework for the ses health gradient but more generally an improved framework for the production of health we derive novel predictions from the theory by performing comparative dynamic analyses more generally our comparative dynamic method can be applied to models of similar form e g human capital health deficits firm investment to name a few

an empirical test of the effects of government deficits on money demand there is a great deal of interest in how govenment deficits affect macroeconomic variables accordingly there is a large body of theoretical and empirical work on the topic this paper examines the relationship between deficits and interest rates among the difficulties in exploring this relationship is that when conducting monetary policy the federal reserve often targets interest rates such a policy can cloud any relationship between deficits and interest rates a way to avoid this problem among others is to estimate money demand functions that contain a measure of the market value of government debt no evidence is found to support a positive relationship between government debt and money demand this finding implies budget deficits do not affect interest rates through money demand

the market value of u s government debt monthly 1942 1980 abstract the market value of outstanding united states treasury debt is calculated on a monthly basis using price and par value data from the treasury bulletin separate series for treasury bills bonds certificates of indebtedness notes and total treasury debt are presented along with estimates of privately held treasury debt and gross federal debt the calculated market value series is compared to par value and an existing annual market value series

the illusory effects of saving incentives on saving the authors evaluate research on how tax based saving incentives iras and 401 k s affect saving previous research overstates the impact of the incentives on saving by failing to account for several issues households with saving incentives have stronger tastes for saving than others saving incentives have interacted with debt nonfinancial assets financial markets and pensions and saving incentives represent pretax balances whereas taxable accounts represent posttax balances accounting for these issues essentially eliminates the impact of saving incentives on saving the authors conclude that little if any of the contributions to existing saving incentives have raised saving

what do saving investment relationships tell us about capital mobility abstract this paper re examines the tests of international capital mobility based on saving investment regressions originated by feldstein while analyses of various measures of capital controls provide some support for the feldstein hypothesis it is shown that the existence of nontraded goods can independently lead to a saving investment correlation this theoretical critique is supported empirically an analysis of the stability of the coefficients resolves the oft reported puzzle in the literature that economies appear to have become increasingly closed financially over time

how retirement saving programs increase saving this paper summarizes the authors work on the effect of ira and 401 k contributions on net personal saving they consider many different nonparametric approaches to controlling for heterogeneity in individual saving behavior and conclude that the weight of the available evidence suggests that contributions to both iras and 401 k s largely represent new saving the authors devote particular attention to reconciling their results with the findings in other studies that reach different conclusions sometimes using the same databases that the authors analyze methodological limitations that undermine the reliability of results in other studies explain many of these disparities

the retirement consumption puzzle a marital bargaining approach abstract evidence from several countries reveals a substantial drop in household consumption around the age of retirement that is difficult to explain with life cycle models using food consumption data from more than 550 households from the panel study of income dynamics for the years 1979 1986 and 1989 1992 we find that married couple households decrease their expenditures on both food consumed at home and away from home by about 9 following the retirement of the male household head no significant decrease in consumption is found for single households either in a sample of males or a pooled sample of single males and females these results are consistent with a model of marital bargaining in which wives prefer to save more than their husbands do to support an expected longer retirement period and relative control over household decisions is affected by control over market income the pattern of the consumption decline which is increasing in the age gap between husband and wife lends further support to this interpretation

social security and retirement across the oecd abstract employment to population ratios differ markedly across organization for economic cooperation and development oecd countries especially for people aged over 55 years in addition social security features differ markedly across the oecd particularly with respect to features such as generosity entitlement ages and implicit taxes on social security benefits this study postulates that differences in social security features explain many differences in employment to population ratios at older ages this conjecture is assessed quantitatively with a life cycle general equilibrium model of retirement at ages 60 64 years the correlation between the simulations of this study s model and observed data is 0 67 generosity and implicit taxes are key features to explain the cross country variation whereas entitlement age is not

how to eat a cake of unknown size a reconsideration abstract the paper revisits the issue of the optimal depletion of an exhaustible resource stock of uncertain size by recasting it in terms of the hazard function in addition to re establishing some of the existing results it obtains a complete qualitative characterization of the optimal depletion program for a fairly large array of continuous probability distributions that are likely to describe the initial stock distribution it turns out that an important feature of the optimal program is the eventual monotonicity of the optimal extraction cum consumption rate so characteristic of the certainty scenario additional results regarding the duration of the optimal planning horizon and comparison with the situation of perfect certainty provide further insight into the nature of the optimal depletion program for the iso elastic utility function

health insurance and retirement of married couples summary most health insurance in the usa is provided by employers until eligibility for public health insurance medicare begins at age 65 retiring before 65 exposes workers who lack retiree health insurance coverage to the risk of catastrophic medical expenditure we solve and estimate a dynamic model of the employment behavior of older married couples that includes risky medical expenditure and health insurance parameter estimates imply that the risk reducing feature of health insurance can account for about half of the observed association between retiree health insurance and employment for married men but can account for only one tenth of the much larger observed association for married women policy simulations imply very small effects on employment of changing the age of eligibility for medicare from 65 to 67 copyright 2006 john wiley sons ltd

government debt and the demand for money an extreme bound analysis m keivan deravi charles e hegji and h dean moberly the article provides evidence that there is a relationship between government debt and interest rates via the demand for money this relationship is examined through the wealth effect of government debt on money demand and the robustness of the results is tested by the use of extreme bound analysis in addition to standard econometric techniques we find that ols regression shows government debt affecting the demand for money positively implying that federal government debt is net wealth in addition the extreme bound analysis shows that the estimates of the government debt coefficient are robust under alternative specifications of the goldfeld model i introduction this paper studies the relationship between government debt and interest rates the approach used in this paper differs from previous studies in two ways first this relationship is examined through the wealth effect of government debt on the demand for money second the robustness of the results is tested by use of extreme bound analysis as an alternative to standard econometric techniques theoretically there is no clear cut consensus as to whether or not government debt should be net wealth the argument used most often is that government debt will be net wealth if future tax liabilities to service the debt are for the aggregate economy only partially discounted two explanations for this partial discounting are offered first in dealing with finite lived individuals thompson 1967 assumes that the average remaining lifetime of current taxpayers is shorter than for future interest payments on the federal debt in this situation the net present value of a stream of equal interest payments and taxes will be positive as a counter argument barro 1974 has shown that current generations can act effectively as if they are infinite lived when they are linked to future generations through a series of pairwise transfers of wealth here the realization by current generations that tax liabilities will be left to future generations extends the lifetime of the relevant stream of tax liabilities for debt service government debt is then wealth neutral mundell 1971 provides a second reason for partial discounting by assuming that capital markets are imperfect and that the relevant discount rate for tax liabilities is higher than the rate for interest payments these discount rates are respectively thought of as applying to high risk of loan default and low risk of loan default individuals this difference in discount rates creates a positive wealth effect since under mundell s assumptions government debt held by taxpayers involves a loan from low discount rate to high discount rate individuals as barro 1974 has again countered this wealth effect will exist only to the extent that the government is more efficient at providing such a loan than the private sector finally barro 1974 kormendi 1983 and later aschauer 1985 advance an argument as to why government debt might be negative net wealth suppose there is considerable uncertainty about the intertemporal and cross sectional burden of the future tax liability necessary to service the debt in this case the certainty equivalent value of these future taxes might exceed the certainty equivalent value of the future income stream of the debt so that government debt would be negative net wealth the majority of the empirical studies of the net wealth induced linkage between government debt and interest rates have attempted to measure this relationship using consumption functions if privately owned government debt is net wealth the wealth effect of this debt working through a keynesian consumption function will be positive so that increased government borrowing will result in increased current consumption and interest rates several studies have assessed the relationship between government borrowing and consumption or interest rates via this mechanism

how long to eat a cake of unknown size optimal time horizon under uncertainty this paper is concerned with the determination of the optimal time horizon for the cake eating problem under uncertainty it is shown that if the uncertain exhaust ible resource stock is a discrete random variable admitting at most a finite number of values the optimal planning horizon is infinite finite according as the marginal utility of extraction cum consumption is infinite a finite positive value as the latter ap proaches zero thereby extending the scope of the similar result under perfect certainty

is there a retirement consumption puzzle evidence using subjective retirement expectations abstract previous research finds a systematic decrease in consumption at retirement a finding that is inconsistent with the life cycle permanent income hypothesis if retirement is an expected event in this paper we use workers subjective beliefs about their retirement dates as an instrument for retirement after demonstrating that subjective retirement expectations are strong predictors of subsequent retirement decisions we still find a consumption decline at retirement for workers who retire when expected however our estimates of this consumption fall are about a third less than those found when we instead rely on the instrumental variables strategy used in prior studies

labour supply the roles of human capital and the extensive margin we specify and estimate a life cycle labour supply model that expands on earlier work by simultaneously including human capital accumulation saving and bequests an active extensive margin a realistic specification of the progressive tax structure and the social security system and an accounting for private pensions and health expenditures by incorporating all these features we develop new insights into how taxes affect life cycle labour supply for instance we find that labour supply elasticities vary in important ways with age education and the tax structure itself we also show how human capital affects elasticities differently on the intensive versus extensive margins

the optimal production of an exhaustible resource when price is exogenous and stochastic this paper examines the optimal production of a resource such as oil when its price is determined exogenously e g by a cartel such as opec and is subject to stochastic fluctuations away from an expected growth path we first examine the dependence of production on extraction cost and show that the conventional exponential decline curve is indeed optimal if marginal cost is constant with respect to the rate of extraction but is a hyperbolic function of the reserve level we next show that uncertainty about future price affects the optimal production rate in two ways first if marginal cost is a convex concave function of the rate of production stochastic fluctuations in price raise lower average cost over time so that there is an incentive to speed up slow down production second the option value of the reserve i e the ability to withhold production indefinitely and never incur the cost of extraction provides an incentive to slow down the rate of production

disability capacity for work and the business cycle an international perspective important policy issues arise from the high and growing number of people claiming disability benefits for reasons of incapacity for work in oecd countries economic conditions play an important part in explaining both the stock of disability benefit claimants and inflows to and outflows from that stock employing a variety of cross country and country specific household panel data sets as well as administrative data we find strong evidence that local variations in unemployment have an important explanatory role for disability benefit receipt with higher total enrolments lower outflows from rolls and often higher inflows into disability rolls in regions and periods of above average unemployment in understanding the nature of the cyclical fluctuations and trends in disability it is important to distinguish between work disability and health disability the former is likely to be influenced by economic conditions and welfare programmes while the latter evolves in a slower fashion with medical technology and demographic changes there is little evidence of health disability being related to the business cycle so cyclical variations are driven by work disability the rise in unemployment due to the current global economic crisis is expected to increase the number of disability insurance claimants

policy variation labor supply elasticities and a structural model of retirement this paper exploits a combination of policy variation from multiple pension reforms in austria and administrative data from the austrian social security database using the policy changes for identification we estimate social security wealth and accrual elasticities in individuals retirement decisions next we use these elasticities to estimate a dynamic programming model of retirement decisions finally we use the estimated model to examine the labor supply and welfare consequences of potential social security reforms

your retirement and my health behavior evidence on retirement externalities from a fuzzy regression discontinuity design this paper presents evidence on intra household retirement externalities by assessing the causal effect of partner s retirement on own health behaviour in europe we identify partner s retirement effects by applying a fuzzy regression discontinuity rd framework using retirement eligibility as an exogenous instrument for partner s retirement status using data from the survey of health ageing and retirement in europe share we find that while partner s retirement increases own physical activity it also increases smoking by up to 7 cigarettes a day and increases alcohol intake by 1 2 drinks per day furthermore we find that physical activity increases only for individuals that are themselves retired pointing toward compensated effects that arise due to husband s and wife s retirement being complements similarly an increase in alcohol intake is observed only if the individuals are themselves retired and an increase in smoking is only observed if the partner is a smoker suggesting mutual positive externalities and leisure complementarities

money demand the effects of inflation and alternative adjustment mechanisms the paper first reconciles a variety of specification tests for partial adjustment money demand models and points out a fundamental identification problem which makes it impossible to distinguish between the real and nominal partial adjustment models if inflation has an independent effect on the long run demand for money the paper also finds that empirical estimates of simple partial adjustment models have some undesirable properties and then considers the shortand long run effects of inflation in a more general distributed lag model

are americans saving optimally for retirement we solve each household s optimal saving decisions using a life cycle model that incorporates uncertain lifetimes uninsurable earnings and medical expenses progressive taxation government transfers and pension and social security benefits with optimal decision rules we compare household by household wealth predictions from the life cycle model using a nationally representative sample we find making use of household specific earnings histories that the model accounts for more than 80 percent of the 1992 cross sectional variation in wealth fewer than 20 percent of households have less wealth than their optimal targets and the wealth deficit of those who are undersaving is generally small

changes in consumption at retirement evidence from panel data abstract previous empirical literature has found a sharp decline in consumption during the first years of retirement implying that individuals do not save enough for their retirement this phenomenon is called the retirement consumption puzzle we find no evidence of the retirement consumption puzzle using panel data from 1980 to 2000 consumption is defined as nondurable expenditure a more comprehensive measure than only food used in many of the previous studies we find that food expenditure declines at retirement which is consistent with previous studies

labor force dynamics of older men this paper describes and analyzes movements of older men among labor force states in the united states using quarterly observations derived from the retirement history survey rhs the results indicate substantial undercounts in the biannual data indicating that the prevalence of labor force movements at older ages has been underestimated previously the results show that labor force dynamics at older ages are important including duration and spell occurrence dependence and work experience effects these effects are robust to nonparametric controls for unobserved heterogeneity the estimates indicate that social security benefits have strong effects on the timing of labor force transitions at older ages but that changes in social security benefit levels over time have not contributed much to the trend toward earlier labor force exit excerpt

the effects of health insurance and self insurance on retirement behavior this paper provides an empirical analysis of the effects of employer provided health insurance medicare and social security on retirement behavior using data from the health and retirement study we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses our results suggest that medicare is important for understanding retirement behavior and that uncertainty and saving are both important for understanding the labor supply responses to medicare half the value placed by a typical worker on his employer provided health insurance is the value of reduced medical expense risk raising the medicare eligibility age from 65 to 67 leads individuals to work an additional 0 074 years over ages 60 69 in comparison eliminating 2 years worth of social security benefits increases years of work by 0 076 years

the retirement consumption puzzle evidence from a regression discontinuity approach in this paper we investigate the size of the consumption drop at retirement in italy we use micro data on food and total non durable household spending covering the period 1993 2004 and evaluate the change in consumption that accompanies retirement by exploiting the exogenous variability in pension eligibility to correct for the endogenous nature of the retirement decision we take a regression discontinuity design approach and make the identifying assumption that consumption would be the same around the threshold for pension eligibility if individuals would not retire we check in our data that a non negligible fraction of individuals retire as soon as they become eligible and estimate at 9 8 the part of the non durable consumption drop that is associated with retirement induced by eligibility we show that such fall is not driven by liquidity problems for the less well off in the population and can be accounted for by drops in goods that are work related expenses or leisure substitutes however we also show that retirement induces a significant drop in the number of grown children living with their parents and this can account for most of the retirement consumption drop

retirement and consumption in a life cycle model consumption expenditure declines sharply at the time of retirement for many households but the majority maintain a smooth consumption path a simple life cycle model with uncertainty about the time of retirement can account for this pattern a richer version of the model is calibrated to data from the health and retirement study hrs the median change in consumption expenditure at retirement generated by the model is zero while the mean is negative matching the hrs data however the magnitude of the drop in consumption among households that experience a decline is too small in the model compared to the data

health and other asset holdings despite clear evidence of correlations between financial and medical statuses and decisions most models treat financial and health related choices separately this article bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption portfolio holdings health investment and health insurance we solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health related decisions is sensible and of the pathways through which wealth and health determine allocations welfare and other variables of interest such as expected longevity or the value of health furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model

the retirement consumption puzzle and involuntary early retirement evidence from the british household panel survey this article uses data from the british household panel survey bhps to shed further light on the fall in consumption at retirement the retirement consumption puzzle comparing food spending of men retiring involuntarily early through ill health or redundancy with spending of men who retire voluntarily it finds a significant fall in spending only for those who retire involuntarily this is consistent with the observed fall in spending being linked to a negative wealth shock for some retirees

wealth accumulation and the propensity to plan why do similar households end up with very different levels of wealth we show that differences in the attitudes and skills with which they approach e nancial planning are a signie cant factor we use new and unique survey data to assess these differences and to measure each household s propensity to plan we show that those with a higher such propensity spend more time developing e nancial plans and that this shift in planning is associated with increased wealth these e ndings are consistent with broad psychological evidence concerning the benee cial impacts of planning on goal pursuit those with a high propensity to plan may be better able to control their spending and thereby achieve their goal of wealth accumulation we e nd direct evidence supporting this effortful self control channel in the very strong relationship we uncover between the propensity to plan and budgeting behavior

the effects of health wealth and wages on labour supply and retirement behaviour this paper estimates a life cycle model of labour supply retirement and savings behaviour in which future health status and wages are uncertain individuals face a fixed cost of work and cannot borrow against future labour pension or social security income the method of simulated moments is used to match the life cycle profiles of labour force participation hours worked and assets that are estimated from the data to those that are generated by the model the model establishes that the tax structure of the social security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65 removing the tax wedge embedded in the social security earnings test for individuals aged 65 and older would delay job exit by almost one year by contrast social security benefit levels health and borrowing constraints are less important determinants of job exit at older ages for example reducing social security benefits by 20 would cause workers to delay exit from the labour force by only three months

what accounts for the variation in retirement wealth among u s households even among households with similar socioeconomic characteristics saving and wealth vary considerably life cycle models attribute this variation to differences in time preference rates risk tolerance exposure to uncertainty relative tastes for work and leisure at advanced ages and income replacement rates these factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile using the panel study of income dynamics and the consumer expenditure survey we find little support for these implications the data are instead consistent with rule of thumb mental accounting or hyperbolic discounting theories of wealth accumulation jel di d91 e21

fiscal policy and the term structure abstract this paper investigates the empirical association between deficits in interest rates it extends the results in plosser 1982 to include the more recent experience the association between a measure of ex ante real rates and deficits is also considered the results largely corroborate the previous results first little or no association between real or nominal interest rates and deficits is found second output and to a lesser extent military spending are found to have a significant association with interest rates

a comparison among partial adjustment rational expectations and error correction estimates of the canadian demand for money starting from a dynamic optimization principle the currently most popular approaches to modelling money demand functions are derived the partial adjustment adaptive expectations rational expectations and error correction mechanism formulations are then estimated using a common data set the error correction mechanism equation is found to dominate the others either because their implicit restrictions are rejected rational expectations or by employing the encompassing principle partial adjustment adaptive expectations surprisingly all three forms have similar long run solutions since the short run dynamics differ substantially the results have important implications for the conduct of monetary policy

the demand for money in the united states evidence from cointegration tests this paper uses recent cointegration test procedures to investigate the underlying economic relationship between real money balances real income and interest rates for the united states unlike recent studies of money demand the authors analysis uses quarterly data spanning the period 1915 88 thus providing a sample encompassing a wide variety of economic experiences the evidence presented indicates that the broader m2 measure of money is the preferable measure with which to consider the long run effects of monetary policy copyright 1991 by ohio state university press

is there a retirement consumption puzzle in japan evidence from a household panel dataset spanning several years using a unique long run panel of japanese households this paper examines the changes in consumption at retirement the retirement consumption puzzle our analysis shows that households expendi

government financing decisions and asset returns abstract this paper presents an empirical investigation of the relation between government financing decisions and asset returns in particular the focus is on whether a substitution of debt financing for tax financing of a given level of expenditures is associated with an increase in interest rates the paper brings a different perspective to empirical investigations of government fiscal policies by examining the response of asset prices in an efficient capital market to such policies rather than focusing on aggregate consumption behavior the results are consistent with the idea that asset prices are unrelated to how the government finances its expenditures the results however also indicate that the capital market is not indifferent with respect to the level of government expenditures as higher interest rates are associated with increases in government purchases

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

aggressive oil extraction and precautionary saving coping with volatility the effects of stochastic oil demand on optimal oil extraction paths and tax spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic without prudence optimal oil extraction is governed by the hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle volatile oil demand brings forward oil extraction and induces a bigger government surplus with prudence the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward especially if it has substantial monopoly power on the oil market gives high priority to the public spending target is very prudent and future oil demand has high variance uncertain economic prospects induce even higher precautionary saving and if non oil revenue shocks and oil revenue shocks are positively correlated even more aggressive oil extraction in contrast prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving but less so if uncertainty about reserves and oil demand are positively correlated

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

crash and wait the impact of the great recession on the retirement plans of older americans this study uses data from pre and post crash surveys from the cognitive economics study to examine the impact of recent stock and labor market wealth losses on the planned retirement ages of older americans regression estimates imply that the average wealth loss between july 2008 and may june 2009 is associated with an increase in planned retirement age of approximately 2 5 months furthermore pessimism about future stock market returns is found to amplify the impact of wealth losses on retirement timing

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement