Aging and inequality

Aging and inequality

This data summarizes the evolution of consumption and wealth inequality over the forthcoming decades of longevity. In a defined contribution system, with extending life span on retirement, pension benefits are bound to decline (at least, if the retirement age is not raised). These declining pension benefits will encourage agents to increase voluntary savings in other to smooth consumption over lifetime. This is likely to affect wealth and consumption inequality, despite unchanged institutional arrangement and stable productivity heterogeneity within cohorts. Our data shows the magnitude of these effects for the case of Poland, a country undergoing a transition from a defined benefit to a defined contribution, gradually extending life spans and TFP growth convergence towards Western Europe. 

Our data reports several measures for wealth and consumption inequality: the Gini coefficient, the Theil Index, ratios of 20th, 50th and 80th percentile. If you need alternative inequality measures, please contact us. The files to be downloaded include data and documentation. The publication describing the macroeconomic OLG model providing the results of this simulation is available here:

Inequality in an OLG economy with intra-cohort heterogeneity and an obligatory pension system

Joanna Tyrowicz, Krzysztof Makarski, Marcin Bielecki

While the inequalities of endowments are widely recognized as areas of policy intervention, the dispersion in preferences may also imply inequalities of outcomes. In this paper, we analyze the inequalities in an OLG model with obligatory pension systems. We model both policy relevant pension systems (a defined benefit system — DB — and a transition from a DB to a defined contribution system, DC). We introduce within cohort heterogeneity of endowments (individual productivities) and heterogeneity of preferences (preference for leisure and time preference). We introduce two policy instruments, which are widely used: a contribution cap and a minimum pension. In theory these instruments affect both the incentives to work and the incentives to save for the retirement with different strength and via different channels, but the actual effect attributable to these policy instruments cannot be judged in an environment with a single representative agent. We show four main results. First, longevity increases aggregate consumption inequalities substantially in both pension systems, whereas the effect of a pension system reform works to reinforce the consumption inequalities and reduce the wealth inequalities. Second, the contribution cap has negligible effect on inequalities, but the role for minimum pension benefit guarantee is more pronounced. Third, the reduction in inequalities due to minimum pension benefit guarantee is achieved with virtually no effect on capital accumulation. Finally, the minimum pension benefit guarantee addresses mostly the inequalities which stem from differentiated endowments and not those that stem from differentiated preferences.