Essays in the Economics of Aging

Aging populations place significant pressure on policy makers in rich and poor countries alike, especially as they contemplate publicly funded old-age support programs. My dissertation explores the economic behaviour of the elderly in three different countries, under three quite different institutional settings for the support of the elderly. The core chapters focus on the experience of the elderly in Taiwan, a middle-income country that recently adopted a modern public pension system. I also examine retirement behaviour in rural China, where there is no public pension scheme, and the economic outcomes of elderly immigrants to Canada---a country at the other end of income spectrum. In Chapter 2 I address a key question regarding the major welfare connotation of publicly financed pensions: when a pensioner receives a dollar of benefit, does his/her income go up by the full amount? To answer this question, I examine private responses to public pensions, focusing on the displacement of private inter-household transfers---a traditional channel for adult children to support elderly parents---by pension income. Using the introduction of the Taiwan Farmers' Pension Program (FPP) as a "quasi-experiment," the empirical results from multiple identification strategies consistently imply that one dollar of pension income "crowds out" around 25 cents of private transfers received by the elderly. The partial (less than dollar-for-dollar) replacement rate implies that the pension benefits are shared by the recipients and their adult children, who would otherwise make more transfers to their elderly parents. Also exploiting the FPP in Taiwan, chapter 3 explores additional welfare implications of publicly funded pensions, focusing on the "income effect" associated with the additional pension income, and interpreted in the light of differential responsiveness of consumption to income sources that vary by stability. Using private income as the baseline, the estimated "marginal propensity to consume" out of pension income is around 0.85, significantly higher than the counterpart estimate for private income---around 0.33. A further examination suggests that more risk-averse households appear to make less consumption out of private income---a result that highlights the role of income uncertainty in household consumption. In Chapter 4, joint work with Dwayne Benjamin and Loren Brandt, we evaluate the modern empirical content of the metaphor---"ceaseless toil"---used by Davis-Friedmann (1991) to describe the retirement pattern in rural China before early 1980s: lacking sufficient means of support, the elderly had to work their entire lives. Our analysis centres around the role of age and deteriorating health in retirement decisions. The empirical results suggest that "ceaseless toil" is a reasonable depiction of elderly Chinese work patterns since economic reform, but failing health only plays a small observable role in predicting declining labour supply over the life-cycle. In the last chapter, Michael Baker, Dwayne Benjamin, and I investigate the efficacy of the combination of Canadian public policies aimed at minimizing the extent to which elderly immigrants collect age-related public transfers. In our empirical analysis we compare immigrants' and natives' income sources, highlighting trends in public transfers received by the elderly from 1981 to 1997. We find that elderly immigrants are relatively dependent on provincially funded social assistance over their first ten years upon arrival, and thereafter they substitute towards OAS/GIS benefits.

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