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Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving

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Author Info
Douglas W. Elmendorf
Louise M. Sheiner

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Abstract

We examine whether the aging of the U.S. population adds force to traditional arguments for boosting national saving and conclude--perhaps surprisingly--that it may not. Aging boosts the demands on future resources, but it also changes the rate of return the U.S. economy can expect from saving. We find that the net effect on desired saving is small: some specifications imply that present consumption should fall by a fraction of 1 percent; others imply that consumption should actually increase. Thus, it is optimal to allow future cohorts to bear much/all of the burden of population aging.

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Publisher Info
Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 14 (2000)
Issue (Month): 3 (Summer)
Pages: 57-74
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Handle: RePEc:aea:jecper:v:14:y:2000:i:3:p:57-74

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
  2. Ronald Lee & Jonathan Skinner, 1999. "Will Aging Baby Boomers Bust the Federal Budget?," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 117-140, Winter. [Downloadable!] (restricted)
  3. Martin Feldstein & Charles Horioka, 1980. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Lazear, E.P., 1992. "Some Thoughts on Savings," Papers e-92-17, Stanford - Hoover Institution.
  5. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts - A Meaningful Alternative to Deficit Accounting," NBER Working Papers 3589, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," NBER Working Papers 5571, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Edward P. Lazear, 1994. "Some Thoughts on Savings," NBER Chapters, in: Studies in the Economics of Aging, pages 143-180 National Bureau of Economic Research, Inc. [Downloadable!]
  8. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  9. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April. [Downloadable!] (restricted)
  10. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669 Elsevier. [Downloadable!] (restricted)
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  11. Andrew B. Abel & Olivier J. Blanchard, 1983. "An Intertemporal Model of Saving and Investment," NBER Working Papers 0885, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. David M. Cutler & Louise Sheiner, 1998. "Demographics and Medical Care Spending: Standard and Non-Standard Effects," NBER Working Papers 6866, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. James M. Poterba, 1998. "Population Age Structure and Asset Returns: An Empirical Investigation," NBER Working Papers 6774, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Douglas W. Elmendorf, 1996. "The effect of interest-rate changes on household saving and consumption: a survey," Finance and Economics Discussion Series 96-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Shinichi Nishiyama, 2004. "Analyzing an Aging Population---A Dynamic General Equilibrium Approach---," CIRJE F-Series CIRJE-F-266, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  2. Heinrich Hock & David N. Weil, 2006. "The Dynamics of the Age Structure, Dependency, and Consumption," NBER Working Papers 12140, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. David N. Weil, 2006. "Population Ageing," Working Papers id:506, esocialsciences.com. [Downloadable!]
    Other versions:
  4. William B. P. Robson, 2001. "Six Pillars of Social Policy: The State of Pensions and Health Care in Canada," The State of Economics in Canada: Festschrift in Honour of David Slater, in: Patrick Grady & Andrew Sharpe (ed.), The State of Economics in Canada: Festschrift in Honour of David Slater, pages 183-224 Centre for the Study of Living Standards. [Downloadable!]
  5. Shinichi Nishiyama, 2004. "Social Security Reform in an Economy with Population Aging," Econometric Society 2004 North American Winter Meetings 582, Econometric Society. [Downloadable!]
  6. Flodén, Martin, 2002. "Public Saving and Policy Coordination in Ageing Economies," CEPR Discussion Papers 3567, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Juan Carlos Conesa & Carlos Garriga, 2009. "Generational policy and the macroeconomic measurement of tax incidence," Working Papers 2009-003, Federal Reserve Bank of St. Louis. [Downloadable!]
  8. Douglas W. Elmendorf & Jeffrey B. Liebman & David W. Wilcox, 2001. "Fiscal Policy and Social Security Policy During the 1990s," NBER Working Papers 8488, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Agar Brugiavini, 2002. "Savings: The Policy Debate in Europe," MEA discussion paper series 02018, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
    Other versions:
  10. Henning Bohn, 2006. "Optimal Private Responses to Demographic Trends: Savings, Bequests and International Mobility," RBA Annual Conference Volume, in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia. [Downloadable!]
  11. Heijdra, B.J. & Ligthart, J.E., 2004. "The macroeconomic dynamics of demographic shocks," Discussion Paper 90, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  12. Louise Sheiner & Daniel Sichel & Lawrence Slifman, 2007. "A primer on the macroeconomic implications of population aging," Finance and Economics Discussion Series 2007-01, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Sergio Cesaratto, 2002. "The Economics of Pensions: a non-conventional approach," Review of Political Economy, Taylor and Francis Journals, vol. 14(2), pages 149-177, April. [Downloadable!] (restricted)
  14. Kyung-Mook Lim & David N. Weil, 2003. "The Baby Boom and the Stock Market Boom," Working Papers 2003-07, Brown University, Department of Economics. [Downloadable!]
    Other versions:
  15. Ross S. Guest & Ian M. McDonald, 2007. "Other-regarding Uzawa Preferences and Living Standard Catch-up," DEGIT Conference Papers c012_034, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
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