Cluster-Seminar Öffentliche Finanzen und Lebenslagen

We develop a comprehensive life-cycle model of elder parent care and work to evaluate options that address pressing conflicts between pension and long-term care (LTC) policies. Many OECD countries react to challenges of demographic change by increasing LTC by family members (informal care) and raising retirement ages. This intensifies conflicts between paid employment and informal care provision. We extend the previous literature, integrating formal and informal care options to point to impacts of institutionalized incentives on the care-mix. We combine endogenous with exogenous processes and improve on earlier models by incorporating important information on parents to model care-demand. We validate the model using a quasi-experimentalsetting in Germany. Policy simulations show a decrease in informal care supply as retirement ages are increased. Even though formal and informal care are no perfect substitutes in the model, the demand for formal care increases as a consequence. Further, women with potential care-demand suffer higher reductions in life-time earnings as well as welfare. Policy simulations suggest that pension points collected in times of informal care supply reduce detrimental effects of changes to pension rules on informal care supply and the care-mix. These policies can also reduce losses in welfare and life-time earnings for women with potential care-demand. Labor market frictions matter in the uptake of informal care. Our simulations show that removing these have similar positive effects on the care system while reducing labor supply.