Prediction of the economic cost of individual long-term care in the Spanish population

Pensions together with savings and investments during active life are key elements of retirement planning. Motivation for personal choices about the standard of living, bequest and the replacement ratio of pension with respect to last salary income must be considered. This research contributes to the financial planning by helping to quantify long-term care economic needs. We estimate life expectancy from retirement age onwards. The economic cost of care per unit of service is linked to the expected time of needed care and the intensity of required services. The expected individual cost of long-term care from an onset of dependence is estimated separately for men and women. Assumptions on the mortality of the dependent people compared to the general population are introduced. Parameters defining eligibility for various forms of coverage by the universal public social care of the welfare system are addressed. The impact of the intensity of social services on individual predictions is assessed, and a partial coverage by standard private insurance products is also explored. Data were collected by the Spanish Institute of Statistics in two surveys conducted on the general Spanish population in 1999 and in 2008. Official mortality records and life table trends were used to create realistic scenarios for longevity. We find empirical evidence that the public long-term care system in Spain effectively mitigates the risk of incurring huge lifetime costs. We also find that the most vulnerable categories are citizens with moderate disabilities that do not qualify to obtain public social care support. In the Spanish case, the trends between 1999 and 2008 need to be further explored.

Evaluating antitrust leniency programs

This paper identifies and then quantifies econometrically the impact of leniency programs on the perception of the effectiveness of antitrust policies using country level panel data for a 10-year span. Leniency programs have been introduced gradually in antitrust legislation across the globe to fight more effectively against cartels. We use the dynamics of the diffusion of such policy innovation across countries and over time to evaluate the impact of the program. We find that leniency programs have had a significant impact on the perception among the business community of the effectiveness of each country‟s antitrust policy. Leniency programs have become weapons of mass dissuasion in the hands of antitrust enforcers against the more damaging forms of explicit collusion among rival firms in the market place.

Airline Consolidation and the Distribution of Traffic between Primary and Secondary Hubs

Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta s network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta s primary hubs at the expense of its secondary airports. We also find some evidence suggesting that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York s JFK airport. Keywords: primary hub; secondary hub; airport congestion; airline consolidation; airline networks JEL Classi fication Numbers: D43; L13; L40; L93; R4

Social Security in Theory and Practice (II): Efficiency Theories, Narrative Theories, and Implications for Reform

166 countries have some kind of public old age pension. What economic forces create and sustain old age Social Security as a public program? Mulligan and Sala-i-Martin (1999b) document several of the internationally and historically common features of social security programs, and explore "political" theories of Social Security. This paper discusses the "efficiency theories", which view creation of the SS program as a full of partial solution to some market failure. Efficiency explanations of social security include the "SS as welfare for the elderly" the "retirement increases productivity to optimally manage human capital externalities", "optimal retirement insurance", the "prodigal father problem", the "misguided Keynesian", the "optimal longevity insurance", the "government economizing transaction costs", and the "return on human capital investment". We also analyze four "narrative" theories of social security: the "chain letter theory", the "lump of labor theory", the "monopoly capitalism theory", and the "Sub-but-Nearly-Optimal policy response to private pensions theory". The political and efficiency explanations are compared with the international and historical facts and used to derive implications for replacing the typical pay-as-you-go system with a forced savings plan. Most of the explanations suggest that forced savings does not increase welfare, and may decrease it.

Social spending and demographics: The role of public policies in the intergenerational redistribution of income. Empirical evidence from Spain and Catalonia

The demographic shift underway in Southern Europe requires a revision of some of the fundamental principles of the traditional welfare state. We analyze the evolution of several aspects of welfare and social expenditure over the last two decades. We find that in the context of the present demographic changes and real estate boom current social and pension policy leads to a new distribution of benefits and burdens which is highly intergenerationally unequal. We argue for a revised definition of public policy based on Musgrave's proposition as a possible rule for an intergenerationally fair distribution.

Social security in theory and practice (II): Efficiency theories, narrative theories and implications for reform

166 countries have some kind of public old age pension. What economic forcescreate and sustain old age Social Security as a public program? Mulligan and Sala-i-Martin (1999b) document several of the internationally and historically common features of social security programs, and explore "political" theories of Social Security. This paper discusses the "efficiency theories", which view creation of the SS program as a full of partial solution to some market failure. Efficiency explanations of social security include the "SS as welfare for the elderly" the "retirement increases productivity to optimally manage human capital externalities", "optimal retirement insurance", the "prodigal father problem", the "misguided Keynesian", the "optimal longevity insurance", the "governmenteconomizing transaction costs", and the "return on human capital investment". We also analyze four "narrative" theories of social security: the "chain letter theory", the "lump of labor theory", the "monopoly capitalism theory", and the "Sub-but-Nearly-Optimal policy response to private pensions theory".The political and efficiency explanations are compared with the international and historical facts and used to derive implications for replacing the typical pay-as-you-go system with a forced savings plan. Most of the explanations suggest that forced savings does not increase welfare, and may decrease it.

What social security: Beveridgean or Bismarckian?

Why are Bismarckian social security systems associated with largerpublic pension expenditures, a smaller fraction of private pension andlower income in-equality than Beveridgean systems? These facts arepuzzling for political economy theories of social security whichpredict that Beveridgean systems, involving intra-generationalredistribution, should enjoy larger support among low-income people andthus be larger. This paper explains these features in a bidimensionalpolitical economy model. In an economy with three income groups,low-income support a large, redistributive system; middle-income favoran earning-related system, while high-income oppose any public system,since they have access to a superior saving technology, a privatesystem. We show that, if income inequality is large, the voting majorityof high-income and low-income supports a (small) Beveridgean system,and a large private pillar arises; the opposite occurs with lowinequality. Additionally, when the capital market provides higherreturns, a Beveridgean system is more likely to emerge.

An evaluation of the life-cycle effects of minimum pensions on retirement behavior

In this paper we explore the effects of the minimum pension program on welfare andretirement in Spain. This is done with a stylized life-cycle model which provides a convenient analytical characterization of optimal behavior. We use data from the Spanish Social Security to estimate the behavioral parameters of the model and then simulate the changes induced by the minimum pension in aggregate retirement patterns. The impact is substantial: there is threefold increase in retirement at 60 (the age of first entitlement) with respect to the economy without minimum pensions, and total early retirement (before or at 60) is almost 50% larger.

Retirement incentives, individual heterogeneity and labour transitions of employed and unemployed workers

In this paper we analyze the sensitivity of the labour market decisions of workers close toretirement with respect to the incentives created by public regulations. We improve upon the extensiveprior literature on the effect of pension incentives on retirement in two ways. First, bymodeling the transitions between employment, unemployment and retirement in a simultaneousmanner, paying special attention to the transition from unemployment to retirement (which is particularlyimportant in Spain). Second, by considering the influence of unobserved heterogeneity inthe estimation of the effect of our (carefully constructed) incentive variables.Using administrative data, we find that, when properly defined, economic incentives have astrong impact on labour market decisions in Spain. Unemployment regulations are shown to be particularlyinfluential for retirement behaviour, along with the more traditional determinants linked tothe pension system. Pension variables also have a major bearing on both workers reemploymentdecisions and on the strategic actions of employers. The quantitative impact of the incentives, however,is greatly affected by the existence of unobserved heterogeneity among workers. Its omissionleads to sizable biases in the assessment of the sensitivity to economic incentives, a finding thathas clear consequences for the credibility of any model-based policy analysis. We confirm theimportance of this potential problem in one especially interesting instance: the reform of earlyretirement provisions undertaken in Spain in 2002. We use a difference-in-difference approach tomeasure the behavioural reaction to this change, finding a large overestimation when unobservedheterogeneity is not taken into account.

Social spending and demographics: The role of public policies in the intergenerational redistribution of income. Empirical evidence from Spain and Catalonia

The demographic shift underway in Southern Europe requires a revision of some of thefundamental principles of the traditional welfare state. We analyze the evolution of several aspects of welfare and social expenditure over the last two decades. We find that in the context of the present demographic changes and real estate boom current social and pension policy leads to a new distribution of benefits and burdens which is highly intergenerationally unequal. We argue for a revised definition of public policy based on Musgrave's proposition as a possible rule for an intergenerationally fair distribution.

Social security in theory and practice (I): Facts and political theories

166 countries have some kind of public old age pension. What economic forcescreate and sustain old age Social Security as a public program? We document some of the internationally and historically common features of Social Security programs including explicit and implicit taxes on labor supply, pay-as-you-go features, intergenerational redistribution, benefits which areincreasing functions of lifetime earnings and not means-tested. We partition theories of Social Security into three groups: "political", "efficiency" and "narrative" theories. We explore three political theories in this paper: the majority rational voting model (with its two versions: "the elderly as the leaders of a winning coalition with the poor" and the "once and for all election" model), the "time-intensive model of political competition" and the "taxpayer protection model". Each of the explanations is compared with the international and historical facts. A companion paper explores the "efficiency" and "narrative" theories, and derives implicationsof all the theories for replacing the typical pay-as-you-go system with a forced savings plan.

Assessing the wellbeing of the Spanish elderly

In this paper we use a variety of data sources, both micro and macro, time series, crosssection, and panel data to provide an empirical evaluation of the current level of economicwellbeing of the Spanish elderly, and of its determinants. We focus, in particular on the role played by the pension system and its generosity in terms of minimum pension supplements and non-contributive pensions. In an IV context, we find that actual Social Security benefits contribute substantially to explain income and consumption poverty levels and trends of low income and consumption percentiles. Thus we offer support to previous evidence for Spain emphasizing the role of minimum benefit policies.

Viabilidad del sistema de pensiones y reformas por el lado de los ingresos: una aproximación intergeneracional

Este artículo, mediante el método de la Contabilidad Generacional, examina la viabilidad a largo plazo y los efectos sobre la redistribución intergeneracional de la renta del sistema de pensiones español. Dado la enorme deuda acumulada, que se traslada a las generaciones futuras, se explora la posibilidad de introducir políticas de reforma por el lado de los ingresos que pretenden mitigar la fuerte dependencia demográfica de las finanzas de la Seguridad Social. El principal resultado obtenido es que la gravedad de la crisis demográfica hace que estos tipos de medidas estudiadas sean claramente insuficientes para restaurar el equilibrio intergeneracional.

Viabilidad del sistema de pensiones y reformas por el lado de los ingresos: una aproximación intergeneracional

Este artículo, mediante el método de la Contabilidad Generacional, examina la viabilidad a largo plazo y los efectos sobre la redistribución intergeneracional de la renta del sistema de pensiones español. Dado la enorme deuda acumulada, que se traslada a las generaciones futuras, se explora la posibilidad de introducir políticas de reforma por el lado de los ingresos que pretenden mitigar la fuerte dependencia demográfica de las finanzas de la Seguridad Social. El principal resultado obtenido es que la gravedad de la crisis demográfica hace que estos tipos de medidas estudiadas sean claramente insuficientes para restaurar el equilibrio intergeneracional.

Pensions and procrastination : how can employers help their employees save for the future?

In this paper I show that employees tend to procrastinate when they are expected to decide whether or not they would like to save using the defined contribution pension scheme offered by their employer. By auto-enrolling the employees or asking them to decide before a given deadline, employers can mitigate some of the problems caused by employee procrastination. However both of these mechanisms present their own problems, caused by default stickiness and other issues, so I discuss how employers can decide which is the right mechanism to use depending on the characteristics of their employees, and how to minimize the problems these mechanisms can cause.