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  • 1
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2016-05-23
    Description: The present paper studies the growth and efficiency consequences of pension funding with individual retirement accounts in a general equilibrium overlapping generations model with idiosyncratic lifespan and labor income uncertainty. We distinguish between economies with rational and hyperbolic consumers and compare the consequences of voluntary and mandatory retirement plans. Three major findings are derived in our study: First, we quantify the commitment effect of social security for myopic individuals by roughly 1 percent of aggregate resources. It is possible to recapture this commitment technology in IRAs, if those are annuitized. Second, despite the fact that our consumers have an operative bequest motive, the welfare gain from the (implicit) longevity insurance of the pension system is significant and amounts to roughly 0.5 percent of aggregate resources. However, mandatory annuitization reduces unintended bequests so that future generations are significantly hurt. Finally, our results highlight the importance of liquidity effects for social security analysis. These efficiency gains are only attainable if accounts are voluntary and not mandatory.
    Keywords: H55 ; J26 ; ddc:330 ; individual retirement accounts ; annuities ; stochastic general equilibrium ; hyperbolic consumers ; Alterssicherung ; Rentenfinanzierung ; Private Rentenversicherung ; Konsumentenverhalten ; Zeitpräferenz ; Versicherungspflicht ; Wohlfahrtseffekt ; Allgemeines Gleichgewicht ; Overlapping Generations ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 2
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2018-01-31
    Description: This paper studies the long-run macroeconomic, distributional and welfare effects of tuition policy and student loans. We therefore form a rich model of risky human capital investment based on the seminal work of Heckman, Lochner and Taber (1998). We extend their original model by variable labor supply, borrowing constraints, idiosyncratic wage risk, uncertain life-span, and multiple schooling decisions. This allows us to build a direct link between students and their parents and make the initial distribution of people over different socio-economic backgrounds endogenous. Our simulation indicate that privatization of tertiary education comes with a vast reduction in the number of students, an increase in the college wage premium and longrun welfare losses of around 5 percent. Surprisingly, we find that from privatization of tertiary education, students are better off compared to workers from other educational classes, since the college wage premium nearly doubles. In addition, our model predicts that income contingent loans on which students don't have to pay interest, improve the college enrolment situation for agents from all kinds of backgrounds.
    Keywords: I22 ; J24 ; H52 ; ddc:330 ; public vs. private education ; schooling choice ; human capital investment ; idiosyncratic uncertainty
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 3
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2018-01-31
    Description: The present paper aims to quantify the growth and welfare consequences of changing family structures in western societies. For this reason we develop a dynamic general equilibrium model with both genders which takes into account changes of the marital status as a stochastic process. Individuals respond to these shocks by adjusting savings and labor supply. Our quantitative results indicate that the declining number of marriages coupled with increasing divorce rates had a profound effect on macroeconomic variables and long-run welfare. We find a significant increase in aggregate capital accumulation and a rising labor market participation of women. In addition, our simulations indicate that the change in the marital structure had significant negative welfare consequences for women who lost between 0.4 and 2.2 percent of aggregate resources. The impact on men's welfare, however, could be positive or negative depending on the specific calibration.
    Keywords: J12 ; J22 ; ddc:330 ; family formation ; stochastic general equilibrium ; life cycle model
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 4
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    Nürnberg: Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
    Publication Date: 2019-02-26
    Description: The present paper aims to quantify the macroeconomic and welfare effects of taxfavored retirement accounts. Starting from an equilibrium without saving incentives, we introduce such accounts and compute the new transition path and the resulting long-run equilibrium. Since our overlapping-generations model comprises a detailed progressive tax system, borrowing constraints as well as stochastic income risk, we can compare macroeconomic and liquidity effects, tax distortions and the insurance properties of the policy reform. Our simulations indicate that tax-favored retirement accounts as implemented in many OECD countries will have a significant impact on capital accumulation and wage growth in the long run, but only yield insignificant aggregate efficiency changes. While elderly generations are typically hurt by such a reform, young and future generations benefit. Finally, with respect to the intragenerational redistribution, a subsidy system that includes direct bonus payments might be preferred to a system with pure tax deductions.
    Keywords: H55 ; J26 ; ddc:330 ; Savings incentives ; stochastic general equilibrium model
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 5
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    Nürnberg: Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
    Publication Date: 2019-02-26
    Description: The present paper studies the role of social security in an economy populated by overlapping generations of individuals that have time-consistent or time-inconsistent preferences, face mortality and individual income risk, borrowing constraints as well as progressive income taxes. Our simulations start from an artificial equilibrium where social security is completely neutral. Next we introduce successively alternative deviations from neutrality in order to isolate the various economic effects of social security. The latter are mainly the insurance provision against mortality and income risk, the negative liquidity effects for young households and the provision of a commitment technology for present-biased hyperbolic consumers. Our simulations indicate that the positive effects of social security dominate the negative ones for a wide range of parameter combinations. For our central parametrization social security induces an overall welfare gain which amounts to roughly 1.5 percent of aggregate resources in the hyperbolic model and a welfare loss of about 0.5 percent of resources in the model with rational consumers.
    Keywords: H55 ; J26 ; ddc:330 ; social security ; stochastic general equilibrium ; hyperbolic consumers
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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