Friday, December 8, 2017

New papers from the Social Science Research Network

Are Pension Contributions a Threat to Shareholder Payouts?

Seth Armitage

University of Edinburgh

Ronan Gallagher

University of Edinburgh - Edinburgh Business School


UK companies have been making large contributions to reduce the deficits of their pension funds, and are believed to fund such contributions in part by reducing dividends. Using data from 2003, we find very little evidence that large contributions are associated with reductions in dividends or other payouts to shareholders. We find further that companies tend to make large contributions when they have healthy cash flows and profits. This suggests that the Pensions Regulator allows companies flexibility regarding the timing of contributions, which means contributions are less of a shock to cash flows, and easier to manage.

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On an Efficient Design of Reverse Mortgages: A Possible Solution for Aging Asian Populations

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Harvard Business School - Finance Unit

Rose Neng Lai

University of Macau


While aging population is a worldwide issue, it is more profound in Asia. Reverse mortgages are useful instrument to alleviate the continuous and steady consumption needs of retirees. The “puzzle” is why there has been rather modest uptake even in the US, UK, and Korea where it has been available for a considerable time. We propose a structural design for a reverse mortgage contract that works across geopolitical borders, including key design criteria, issues of education/marketing for both the retirees and their beneficiaries, and a feasible approach to funding reverse mortgage with reliable, cost-efficient supply of funds available consistently so that the reverse mortgages can be supported as a “standard” consideration for everyone considering for retirement. We will also examine the role of the government as regulator and as risk-bearing provider, in the reverse mortgage process. Our preliminary work suggests that an effective institutional means of funding reverse mortgages is likely to be considerable different from current practice. We also discuss how the possible obstacles, particularly Asian traditions, could be solved so as to allow reverse mortgage to be an instrument for improving retirement.

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Mom and Dad We're Broke, Can You Help? A Comparative Study of Financial Transfers within Families Before and after the Great Recession

Mary K. Hamman

University of Wisconsin - La Crosse

Daniela Hochfellner

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Pia Homrighausen


CRR WP 2017-16, November 2017


This paper examines financial transfers within families before and after the great recession. Transfers within families have historically been an important source of wealth accumulation for younger generations, but what happens to these transfers when incomes and wealth are distorted by a recession? We document patterns of financial transfers within families in the U.S. and Germany before and after the Great Recession. This paper uses data from the Health and Retirement Study (HRS) and the Survey of Health, Aging and Retirement in Europe (SHARE). Critical components of the analysis include the estimation of a difference-and-differents model to compare transfer behavior over time, and multiple triple-difference-and-difference models to further study how transfer behavior differs for different population groups. Key limitations are related to available data. The SHARE data used does not contain information for year 2007, which thus had to be excluded from the analysis. In addition, harmonizing the both datasets might introduce some potential of errors. The paper found that: - Transfers from parents to children are pro-cyclical. Fewer U.S. and German parents made transfers to their adult children in 2009 than in 2005, and transfer rates appear to start recovering earlier in Germany than in the U.S. The estimated decline from 2005 to 2009 was 3 percentage points in the U.S. (8 percent) and 7.5 percentage points in Germany (29 percent). - Households who did fairly well during the recession reduce transfers in the same way than households who were not hit by a financial shock. - Households who experienced non-employment also did not reduce transfers compared to households who did not experience non-employment. The policy implications of the findings are: - Private transfers are important for social policy because private financial transfers may be an important source of economic security during recessions, especially in countries where the social safety net is less generous. - Understanding how transfer behavior within family changes during recessions under different public safety nets can inform design of policies to promote economic security and equity. - In terms of our study, we (for example) find no relationships between public transfers crowding out private transfers. This result can be used to make current public policies more efficient.

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Implications of Delaying U.S. Social Security Financing Reform: A Look at the Measurement, Structural and Generational Issues

Sylvester J. Schieber


For presentation at the 2017 East -West Center and Korea Development Institute Conference 28- 29 September 2017


In this paper, we explore the underlying explanations for the under financing of the U.S. Social Security pension system that has persisted since the late 1980s despite repeated calls for reform by the program’s trustees and various advisory groups. Both micro and macro estimates of the cost shifting from older to younger generations because of the delay in financing reform are provided. The analysis shows that recent proposals that call for balancing financing reform adjustments between benefits and revenues would result in most of the cost being shifted to future generations of participants. Because reforms have been delayed and many current proposals call for greater welfare transfers in the program from high to low career earners, the case is made that the costs of reform should be imposed on the basis of participants’ ability to pay rather than on the basis of the year in which they were born.

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