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Welfare Effects of Social Security Reforms Across Europe : the Case of France and Italy

Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, CSEF Working Papers 01/2005;
Source: RePEc

ABSTRACT We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 financial crisis. In addition to widely used VaR and ES models, we also study the behavior of conditional and unconditional extreme value (EV) models to generate 99 percent confidence level estimates as well as developing a new loss function that relates tail losses to ES forecasts. Backtesting results show that only our proposed new hybrid and Extreme Value (EV)-based VaR models provide adequate protection in both developed and emerging markets, but that the hybrid approach does this at a significantly lower cost in capital reserves. In ES estimation the hybrid model yields the smallest error statistics surpassing even the EV models, especially in the developed markets.

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    ABSTRACT: This paper analyzes the welfare effects of the Italian social security system in an economy with uncertainty on wages, financial market returns and life expectancy. The introduction of a pension system reproducing the Italian statutory scheme turns out to decrease ex-ante individual welfare, unless restrictions are assumed on retirement behavior. Overall, risk insurance effects of social security play a minor role in determining welfare variations. The new Italian NDC pension system is shown to yield a slight ex-ante welfare improvement from a purely risk-insurance perspective. This relative gain stems from risk diversification across working-life wages in computing benefits.
    CESifo Group Munich, CESifo Working Paper Series. 01/2009;
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    ABSTRACT: I consider a theory based on households that differ in their education, receive an unin- surable, idiosyncratic endowment of efficiency labor units, and face health and survival risks. Households also understand the link between the payroll taxes they pay and the public pensions that they receive, and decide when to retire from the labor force. I cali- brate this theory to the Spanish economy so that it replicates its demographic features, its macroeconomic aggregates and ratios, the Lorenz curves of its income and earnings distri- butions, and many of its institutional features. I show that this theory accounts for the retirement behavior of Spanish households almost exactly. I then use the model economy to study the aggregate, distributional, retirement and welfare consequences of increasing the number of years of contributions that are used to compute the pensions, and I evaluate this policy reform in the context of both the Spanish demographic and educational tran- sitions. I find that the reform increases the stock of capital by 6.3 percent, and output by 1.6 percent, but it decreases consumption per capita by 2.6 percent. The average pension decreases by more than 19 percent, and the average retirement age from 61.9 to 60.9 years. The reform also reduces the Social Security deficit from 8.6 to 5.4 percent of GDP in the year 2050. Finally, I find that the welfare loss for the population alive at the moment of the reform is 2.5 percent of lifetime consumption.

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May 27, 2014