We present the evaluation of public policies aiming at boosting private savings. Such policies are becoming more and more popular as increasing longevity and declining fertility challenges pension systems around the world. The question remains: are those policies worth their cost?
Standard tools are unable to capture the effects of tax incentivized policies that are supposed to increase old-age savings because they assume full rationality. Model enriched with four types of "irrational" behavior produces a very different evaluation of policies. Not only it is different from the evaluation based on a standard framework, but also the standard framework appears to approximate the enriched framework very poorly.
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The evaluation of public policies aiming at boosting private savings
1. In need for policies and tools - new
modeling approach for demographic
challenges
10th Demographic Conference of "Young
Demographers“
Artur Rutkowski
2. Motivation:
• Demography is a challenge for pension systems
• Increase in savings is required
• Governments introduce costly policies to boost
savings
• Are they worth it?
• Standard tools not enough to answer…
• …because they assume full rationality
2
3. Contribution:
• We go beyond full rationality…
• Enriched framework for modelling savings
decisions
3
4. Plan
• Why demography is a challenge for pension
systems?
• Standard model with fully rational agents only
• Data on behavior – are people rational?
• Our contribution – Imperfect Rationality
introduced
• Instrument evaluation (standard vs enriched
framework)
4
5. Plan
5
• Why demography is a challenge for pension
systems?
• Standard model with fully rational agents only
• Data on behavior – are people rational?
• Our contribution – Imperfect Rationality
introduced
• Instrument evaluation (standard vs enriched
framework)
7. Why demography is a challenge?
7
0%
10%
20%
30%
40%
50%
60%
70%
80%
Year
Share of pensioners whose pension benefit will
not exceed minimal
Statutory retirement age 60/65
Statutory retirement age 61/66
Statutory retirement age 67 for
both sexes
8. Plan
8
• Why demography is a challenge for pension
systems?
• Standard model with fully rational agents only
• Data on behavior – are people rational?
• Our contribution – Imperfect Rationality
introduced
• Instrument evaluation (standard vs enriched
framework)
9. Model:
9
• Overlapping Generations Model – economy
driven by demographics:
– Fertility
– Longevity
• General Equilibrium
• Firms
• Government
• Agents
10. Model:
10
• Overlapping Generations Model – economy
driven by demographics:
– Fertility
– Longevity
• General Equilibrium
• Firms
• Government
• Agents
20. Plan
• Why demography is a challenge for pension
systems?
• Toy model with fully rational agents only
• Data on behavior – are people rational?
• Our contribution – Imperfect Rationality
introduced
• Instrument evolution (standard vs enriched
framework)
20
21. Are people “fully rational”?
• Well, not everybody.
• Myck, Lachowska (2018)
– Fully Rational: people with collage education
• Tyros at al. (2019)
– None among less affluent households
• So what about others?
21
22. Plan
• Why demography is a challenge for pension
systems?
• Toy model with fully rational agents only
• Data on behavior – are people rational?
• Our contribution – Imperfect Rationality
introduced
• Instrument evolution (standard vs enriched
framework)
22
28. Plan
• Why demography is a challenge for pension
systems?
• Standard model with fully rational agents only
• Data on behavior – are people rational?
• Our contribution – Imperfect Rationality
introduced
• Instrument evolution (standard vs enriched
framework)
28
35. Enriched vs standard framework
35
Standard
Framework
Enriched
framework
Fully Rational 0.08% -0.90%
Time Inconsistent -0.45%
Adaptive Learners -0.61%
Financially Illiterate 5.01%
Hands to Mouth 32.54%
Total change of welfare: 0.08% 7.12%
36. Enriched vs standard framework
36
Standard
Framework
Enriched
framework
Fully Rational 0.08% -0.90%
Time Inconsistent -0.45%
Adaptive Learners -0.61%
Financially Illiterate 5.01%
Hands to Mouth 32.54%
Total change of welfare: 0.08% 7.12%
37. Fundacja Adeptów i Miłośników Ekonomii
Group for Research in APplied Economics
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