Topics on economics of ageing : adequacy of saving for retirement, pension reform and retirement patterns
This research analyses three of the main topics on Economics of Ageing relevant
for the debate on public policies for old age. The first section analyses the
most recent proposal of pension reform from a pay-as-you-go to a fully funded system
with personal accounts and its impact on household consumption and saving.
This particular type of pension reform has been encouraged by policymakers under
the premise that it promotes private savings. However, this thesis provides evidence
from the Mexican case which could contradict that assumption. The main results
show that the Mexican pension reform increased consumption and crowded out
savings of low income workers, who are the majority of population affected by the
public policy. These findings are consistent with the predictions of the Life Cycle
model, as the theoretical analysis shows that the pension reform caused an increase
in after tax labour income and pension wealth particularly for low income employees.
The empirical evaluation is conducted using a nonparametric difference-indifferences
estimator implemented with propensity score matching. The second
section studies whether pension systems provide incentives for early retirement. In
developed countries, labour force participation around retirement age has declined
in the past decades. The financial sustainability of pension systems not only bears
the demographic trends of an ageing population with higher life expectancies but
individuals are retiring at younger ages. Recent studies illustrate that these phe-nomena are also emerging in developing countries. This thesis finds evidence that
the pension scheme provides incentives to retire early for the Mexican case.
Finally, the third section is on the adequacy of saving for retirement. 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 has been called the retirement consumption puzzle. In contrast
to some of the previous studies, we find no conclusive evidence of the retirement
consumption puzzle in the US during the first year of retirement. Consumption
is defined as nondurable expenditure, a more comprehensive measure than only
food used in many of the previous studies. Food expenditure around retirement
decreases The latter could be explained by a reallocation of the budgets hares after
retirement to adjust to a new life style. These results suggest that food expenditure
is not an accurate measure to test the Life Cycle Model.