David Hollanders

Pension Funds’ Asset Allocation and Participant Age: A Test of the Life-Cycle Model

This paper examines the impact of participants’ age distribution on the asset allocation of Dutch pension funds, using a unique data set of pension fund investment plans for 2007. Theory predicts a negative effect of age on (strategic) equity exposures. We observe that pension funds do indeed take the average age of their participants into account. However, the average age of active participants has been incorporated much more strongly in investment behaviour than the average ages of retired or dormant participants. This suggests that both employers and employees, who dominate pension fund boards, tend to show more interest in active participants. A one-year higher average age in active participants leads to a significant and robust reduction in the strategic equity exposure by around 0.5 percentage point. Larger pension funds show a stronger age-equity exposure effect than smaller pension funds. This age-dependent asset allocation of pension funds aligns with the original life-cycle model by which young workers should invest more in equity than older workers because of their larger human capital. Other factors, viz. fund size, funding ratio, and average pension wealth of participants, influence equity exposure positively and significantly, in line with theory. Pension plan type and pension fund type have no significant impact.

Telling what yesterday's news might be tomorrow: modeling media dynamics

Abstract In this article, we discuss the use of time series models in communication research. More specifically, we consider autoregressive and moving-average processes, which together constitute the autoregressive integrated moving average-framework (ARIMA). This approach provides a comprehensive framework to deal with the essential issue of stationarity and to model the dynamics of any time series by estimating the autocorrelation structure. Underlying the models are questions as to what extent news tends to reproduce itself and how news flows adjust after deviations from the normal news stream. The data illustrating the models consist of visibility-scores of the immigration issue in Dutch national newspapers. The empirical analysis demonstrates that the impact of immigration figures on this visibility is not significant when the ARIMA-framework is applied, while an analysis using OLS suggests a positive influence.

The graying of the median voter: aging and the politics of the welfare state in OECD countries

Analyzing 30 OECD‐countries in 1980‐2005, this paper documents the effect of an aging electorate on retirement spending. The first outcome is that an increase in the age of the median voter is not significantly associated with an increase in retirement spending relative to GDP. The second outcome is that a higher age of the median voter leads to lower benefits per retiree. These results do not change when health care costs are considered instead of retirement spending. Health care costs – both relative to GDP and per inhabitant – are not significantly influenced by the age of the median voter. An alternative specification with the dependency ratio as the operationalization of aging, shows a positive and significant effect of aging on retirement spending. A positive effect on the generosity of pensions is also not present in this case. These results contradict the main prediction of median voter models that an older median voter successfully pushes for higher individual benefits.

Voters’ Commitment Problem and Welfare-Program Reforms

This paper proposes that reforms by vote-seeking governments and the existence of reform-adverse voters are logically compatible. This results from a commitment problem on the part of voters. Due to economic voting voters cannot credibly commit to reelect a non-reforming government during a recession. The empirical implication of this voter commitment mechanism is that governments only adopt visible welfare-program reforms during economic lows, which is what the empirical political-economic literature has established.

The Political Economy of Intergenerational Risk Sharing

This paper analyses the political constraints of intergenerational risk sharing. The rst result is that the political process generally does not lead to ex ante optimal insurance. The second result is that in a second best political setting PAYG still contributes to intergenerational risk sharing. The third result is that aging in- creases the discrepancy between rst-best and second-best transfers. The source of the ine¢ ciency is that politicians redistribute to larger and easier swayed cohorts. Ex post redistribution to lower incomes still leads to an outcome that from an ex ante point of view is preferable to a situation without intergenerational transfers.

Pension systems do not suffer from ageing or lack of home-ownership but from financialisation

In this article I argue that (1) a house is a substitute for pension savings at the individual level; (2) housing wealth is not wealth on the aggregate level; (3) ageing is not the main problem for pension systems, instead it is financialisation; and (4) policies that link pensions and housing may serve financial actors.

The Graying of the Median Voter

Abstract: Analyzing 30 OECD-countries in 1980-2005, this paper documents the effect of an aging electorate on pension expenditure. The first outcome is that an increase in the age of the median voter leads to less generous pension benefits. The second outcome is that an older median voter is not significantly associated with an increase in pension expenditure relative to GDP. These results do not change when health care costs are considered instead of pension expenditure. The results contradict the main prediction of median voter models that an older median voter will successfully push for higher individual benefits. An alternative specification with the dependency ratio as the operationalization of aging, does show a positive and significant effect of aging on pension expenditure. A positive effect of aging on the generosity of pensions can however also not be found in this case.

Book Review: Inequality: what can be done?AtkinsonABInequality: what can be done?Harvard University Press, 2015; 400 pp.: 9780674504769, €25

quite inclusive and services are good. However, there have been trade-offs. Contrary to Spain, youth unemployment has decreased, but immigrant workers are in precarious jobs as selfemployed or agency workers. The consequence is that dualization, an increasing number of working poor, and patchy as well as expensive provision of child care are a challenge in both countries. The chapter remains silent on child care, which is important to consider for enabling reconciliation of work and family life: it is expensive in both countries and in Switzerland availability is a major challenge. The chapter on the Nordic model, by Jon Erik Dølvik, Jørgen Goul Andersen and Juhana Vartiainen, is an excellent contribution, testing how distinctive and resilient the models are in the era of globalization and as a response to multiple crises. The root cause of crises in the early 1990s and in 2007 (and the varying depth of the crises among Nordic countries) was not in the social models, but rather in the breakdown of coordination between macroeconomic policies as well as collective bargaining, and, crucially, the inability to restrain the credit-induced boom with restrictive fiscal policy. Reforms undertaken previously, in the 1990s, had (partially) geared the Nordic countries to deal with the Great Recession. These reforms had altered the models at the margins, and introduced more conditionality for access to benefits, particularly unemployment benefits. In the 2008 crisis, Sweden (and to a lesser extent Norway) benefited as non-EMU members from currency depreciations and more vigorous interest rate policies. However, unemployment is higher than before the crisis and inequalities have increased. Finland, a full EMU member, and Denmark, with the Danish kroner pegged to the euro, did not have the luxury of currency devaluation and the crisis was prolonged in these two countries. As a response to the crisis, the Nordic countries have tapered the generosity of Nordic model, although it still remains intact. There are several important conclusions from the book. First, while recovery from the Great Recession is picking up across the EU countries, although at different paces, the composition of the labour force is now more unequal. Countries where temporary employment is deregulated now have a greater share of low-paid workers in the European labour force. As noted by Andrew Martin and Jon Erik Dølvik, this trend is worrying, as it may become a permanent feature of the European economy, especially with weaker unions. Young people are particularly vulnerable in this crisis. Secondly, the core of the various social models is resilient, but there are developments at the margins leading to new forms of inequalities. EMU membership does limit possibilities for responding to crises, but while non-EMU countries have benefited from adjusting currencies and interest rates, the paths of growth, employment and equality are not unambiguously better, represented notably by the case of the UK. Thirdly, the politics of reform shows striking similarities in reform responses across countries. The questions about new forms of inequality raised in the book must be researched by scholars and addressed urgently by politicians.

Asset Management Costs and Financial Performance of Dutch Pension Funds in 2011-2014

The costs of Dutch pension funds have increased in the last decades. The costs, as a percentage of assets invested, doubled between 1992-2009. In 2014 total costs equalled 6.3 billion euro, or 19.6% of annual contributions. Asset management is the largest component of costs. Pension funds claim that the costs are necessary for financial performance. Using a unique data-set of Dutch pension funds, the effect of costs on performance is estimated. The hypothesis that higher costs do not lead to better financial results cannot be rejected.

Aging and the Politics of the Welfare State

Analyzing 30 OECD-countries between 1980-2010, this paper estimates the effect of an aging electorate on public expenditure on old age. The main outcome is that an increase in the age of the median voter is not significantly associated with more generous pensions. The second result is that an older median voter is not significantly associated with an increase in pension expenditure relative to GDP. The results do not support the main prediction of median voter models that an older median voter will successfully push for higher individual benefits. There is however a positive and significant effect of the dependency ratio on both public expenditure on old age and on generosity of pensions.