Abstract
One of the key challenges associated with current demographic trends is to provide adequate financial support to older households, which are more vulnerable to health problems and longevity risks, without jeopardizing fiscal sustainability or harming macroeconomic performance. Among possible policies, quasi-universal transfers have recently attracted interest in several countries. In this paper, I study the long-term equity-efficiency tradeoff of these programs and their modifications and compare their impact to that of more standard elderly-oriented policies with similar fiscal costs. My analysis is based on a general equilibrium overlapping generations model that incorporates different family types, individual risk associated with earnings, health and mortality, and stochastic out-of-pocket expenses. According to the model simulations, the quasi-universal transfer to retired households can significantly improve the financial situation of a median pensioner but generates an aggregate welfare loss (under the veil of ignorance). The estimated welfare loss remains robust across various model assumptions, indicating that the positive insurance effect of the quasi-universal transfer is more than offset by the cost of inefficient redistribution from future to current cohorts, even in economies with low provisions for old age insurance. Finally, the quasi-universal transfer outperforms a minimum pension increase by improving the financial situation of a median retiree and reducing relative poverty among pensioners, while being less harmful to economic efficiency.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Arena, M., Di Bella, G., Cuevas, MA., et al.: It is only natural: Europe’s low interest rates. International Monetary Fund (2020)
Attanasio, O., Low, H., Sánchez-Marcos, V.: Explaining changes in female labor supply in a life-cycle model. Amer. Econ. Rev. 98(4), 1517–1552 (2008)
Bańbuła, P., Żółkiewski, Z.: Zasobność gospodarstw domowych w Polsce: Raport z badania 2016 r. Departament Analiz Ekonomicznych i Departament Stabilnosci Finansowej NBP (2016)
Borella, M., De Nardi, M., Yang, F.: Are marriage-related taxes and social security benefits holding back female labour supply? The Rev. Econ. Studies 90(1), 102–131 (2023)
Börsch-Supan, A.: Survey of health, ageing and retirement in Europe (SHARE) waves 2,3,4,6, and 7. Release version Release version: 7.1.0 and 7.1.1. SHARE-ERIC. Data set (2020)
Börsch-Supan, A., Brandt, M., Hunkler, C., et al.: Data resource profile: The survey of Health, Ageing and Retirement in Europe (SHARE). Int. J. Epidemiology 42(4), 992–1001 (2013)
Braun, R.A., Kopecky, K.A., Koreshkova, T.: Old, sick, alone, and poor: A welfare analysis of old-age social insurance programmes. The Rev. Econ. Studies 84(2), 580–612 (2017)
Bruckmeier, K., Wiemers, J.: Benefit take-up and labor supply incentives of interdependent means-tested benefit programs for low-income households. Comparative Econ. Studies 60(4), 583–604 (2018)
Bütler, M., Peijnenburg, K., Staubli, S.: How much do means-tested benefits reduce the demand for annuities? J. Pension Econ. Finance 16(4), 419–449 (2017)
Capatina, E.: Life-cycle effects of health risk. J. Monetary Econ. 74, 67–88 (2015)
del Carmen Boado-Penas, M., Haberman, S., Naka, P.: Fairness and annuity divisors for notional defined contribution pension schemes. J. Pension Econ. Finance 21(2), 143–167 (2022)
Chari, V.V., Nicolini, J.P., Teles, P.: Optimal capital taxation revisited. J. Monetary Econ. 116, 147–165 (2020)
Coady, M.D., Le, N.P.: Designing fiscal redistribution: the role of universal and targeted transfers. International Monetary Fund (2020)
Conesa, J.C., Krueger, D.: Social security reform with heterogeneous agents. Rev. Econ. Dynamics 2(4), 757–795 (1999)
Conesa, J.C., Kitao, S., Krueger, D.: Taxing capital? Not a bad idea after all! Amer. Econ. Rev. 99(1), 25–48 (2009)
Conesa, J.C., Costa, D., Kamali, P., et al.: Macroeconomic effects of Medicare. The J. Econ. Ageing 11, 27–40 (2018)
Currie, J.: Public policy and the distribution of income, Russell Sage Foundation, chap The take-up of social benefits, pp. 80–148 (2006)
De Nardi, M., French, E., Jones, J.B.: Why do the elderly save? The role of medical expenses. J. Politic. Econ. 118(1), 39–75 (2010)
De Nardi, M., French, E., Jones, J.B.: Medicaid insurance in old age. Amer. Econ. Rev. 106(11), 3480–3520 (2016)
De Nardi, M., French, E., Jones, J.B., et al.: Medical spending of the US elderly. Fiscal Studies 37(3–4), 717–747 (2016)
Dethier, J.J., Pestieau, P., Ali, R.: Universal minimum old age pensions: impact on poverty and fiscal cost in 18 latin American countries. World Bank Policy Research Working Paper (5292) (2010)
Eika, L., Mogstad, M., Zafar, B.: Educational assortative mating and household income inequality. J. Political Econ. 127(6), 2795–2835 (2019)
Fehr, H., Kallweit, M., Kindermann, F.: Families and social security. Euro. Econ. Rev. 91, 30–56 (2017)
Gradzewicz, M., Growiec, J., Kolasa, M., et al.: Poland’s uninterrupted growth performance: New growth accounting evidence. Post-Communist Economies 30(2), 238–272 (2018)
Greenwood, J., Guner, N., Kocharkov, G., et al.: Marry your like: Assortative mating and income inequality. Amer. Econ. Rev. 104(5), 348–353 (2014)
Groneck, M., Wallenius, J.: It sucks to be single! Marital status and redistribution of social security. The Econ. J. 131(633), 327–371 (2021)
Harenberg, D., Ludwig, A.: Idiosyncratic risk, aggregate risk, and the welfare effects of social security. Int. Econ. Rev. 60(2), 661–692 (2019)
Heathcote, J., Storesletten, K., Violante, G.L.: The macroeconomic implications of rising wage inequality in the United States. J. Politic. Econ. 118(4), 681–722 (2010)
Holston, K., Laubach, T., Williams, J.C.: Measuring the natural rate of interest: International trends and determinants. J. Intern. Econ. 108, 59–75 (2017)
Huggett, M., Parra, J.C.: How well does the US social insurance system provide social insurance? J. Politic. Econ. 118(1), 76–112 (2010)
Hyslop, D.R.: Rising US earnings inequality and family labor supply: The covariance structure of intrafamily earnings. Amer. Econ. Rev. 91(4), 755–777 (2001)
İmrohoroglu, A., Imrohoroglu, S., Joines, D.H.: A life cycle analysis of social security. Econ. Theory 6(1), 83–114 (1995)
Kaygusuz, R.: Social security and two-earner households. J. Econ. Dynamics and Control 59, 163–178 (2015)
Kaymak, B., Poschke, M.: The evolution of wealth inequality over half a century: The role of taxes, transfers and technology. J. Monetary Econ. 77, 1–25 (2016)
Kolasa, A.: Life cycle income and consumption patterns in Poland. Central Euro. J. Econ. Model. Econometrics 9(2), 137–172 (2017)
Kolasa, A.: Macroeconomic consequences of the demographic and educational changes in Poland after 1990. Macroeconomic Dynamics 25(8), 1993–2036 (2021)
Krusell, P., Quadrini, V., Rios-Rull, J.V.: Are consumption taxes really better than income taxes? J. Monetary Econ. 37(3), 475–503 (1996)
Lindbeck, A., Persson, M.: The gains from pension reform. J. Econ. Lit. 41(1), 74–112 (2003)
Makarski, K., Hagemejer, J., Tyrowicz, J.: Analyzing the efficiency of pension reform: The role of the welfare effects of fiscal closures. Macroeconomic Dynamics 21(5), 1205–1234 (2017)
Melguizo, A., Bosch, M., Pages, C.: Better pensions, better jobs: Status and alternatives toward universal pension coverage in Latin America and the Caribbean. J. Pension Econ. Finance 16(2), 121–143 (2017)
Nishiyama, S.: The joint labor supply decision of married couples and the US Social Security pension system. Rev. Econ. Dynamics 31, 277–304 (2019)
Nishiyama, S., Smetters, K.: Does social security privatization produce efficiency gains? The Quarterly J. Econ. 122(4), 1677–1719 (2007)
OECD: Pensions at a glance 2019: OECD and G20 indicators. OECD Publishing, Paris (2019)
OECD/European Observatory on Health Systems and Policies Poland: Country Health Profile 2019, State of Health in the EU. OECD Publishing, Paris/European Observatory on Health Systems and Policies, Brussels (2019)
Rubaszek, M.: Mortgage down-payment and welfare in a life-cycle model. Bank i Kredyt 43(4), 5–28 (2012)
Schmitt-Grohé, S., Uribe, M.: Closing small open economy models. J. Int. Econ. 61(1), 163–185 (2003)
Schwartz, C.R.: Trends and variation in assortative mating: Causes and consequences. Annual Rev. Soc. 39, 451–470 (2013)
Schwartz, C.R., Mare, R.D.: Trends in educational assortative marriage from 1940 to 2003. Demography 42, 621–646 (2005)
Shen, C., Williamson, J.B.: Does a universal non-contributory pension scheme make sense for rural China? J. Comparative Soc. Welfare 22(2), 143–153 (2006)
Sommer, K.: Fertility choice in a life cycle model with idiosyncratic uninsurable earnings risk. J. Monetary Econ. 83, 27–38 (2016)
Storesletten, K., Telmer, C.I., Yaron, A.: The risk-sharing implications of alternative social security arrangements. In: Carnegie-Rochester Conference Series on Public Policy, Elsevier, pp. 213–259 (1999)
Storesletten, K., Telmer, C.I., Yaron, A.: Consumption and risk sharing over the life cycle. J. Monetary Econ. 51(3), 609–633 (2004)
Stuber, J., Schlesinger, M.: Sources of stigma for means-tested government programs. Social Sci. Medicine 63(4), 933–945 (2006)
Swartz, K.: Searching for a balance of responsibilities: OECD countries’ changing elderly assistance policies. Annual Rev. Public Health 34, 397–412 (2013)
Theil, H.: Economics and information theory. North Holland, Amsterdam (1967)
Tran, C., Woodland, A.: Trade-offs in means tested pension design. J. Econ. Dynamics Control 47, 72–93 (2014)
United Nations Department of Economic and Social Affairs: World Population Ageing 2019. Department of Economic and Social Affairs, Population Division (2020)
Villalobos Dintrans, P.: Long-term care systems as social security: The case of Chile. Health Pol. Plan. 33(9), 1018–1025 (2018)
Willmore, L.: Universal pensions for developing countries. World Development 35(1), 24–51 (2007)
Yogo, M.: Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets. J. Monetary Econ. 80, 17–34 (2016)
Acknowledgements
This project was financed by the National Science Centre of Poland, grant No. 2019/35/D/HS4/02043. I would like to thank Joanna Tyrowicz, Krzysztof Makarski, and the participants of the 28th CEF Conference in Dallas and 2022 WIEM conference for their useful comments. I am also grateful to Ewa Weychert for her valuable research assistance. The views expressed in this paper are my own and not necessarily those of University of Warsaw. All errors are my own.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Supplementary Information
Below is the link to the electronic supplementary material.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Kolasa, A. On the effectiveness of quasi-universal transfers to older households: the case of Poland. J Econ Inequal (2024). https://doi.org/10.1007/s10888-024-09626-9
Received:
Accepted:
Published:
DOI: https://doi.org/10.1007/s10888-024-09626-9