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

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  • Douglas W. Elmendorf
  • Louise M. Sheiner

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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.14.3.57
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Bibliographic 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

Note: DOI: 10.1257/jep.14.3.57
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  1. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 443-77, May.
  2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  3. Douglas W. Elmendorf, 1996. "The effect of interest-rate changes on household saving and consumption: a survey," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 96-27, Board of Governors of the Federal Reserve System (U.S.).
  4. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational accounts: a meaningful alternative to deficit accounting," Working Paper 9103, Federal Reserve Bank of Cleveland.
  5. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669 Elsevier.
  6. 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.
  7. 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.
  8. Andrew B. Abel & Olivier J. Blanchard, 1982. "An Intertemporal Model of Saving and Investment," NBER Working Papers 0885, National Bureau of Economic Research, Inc.
  9. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 90(358), pages 314-29, June.
  10. James M. Poterba, 1998. "Population Age Structure and Asset Returns: An Empirical Investigation," NBER Working Papers 6774, National Bureau of Economic Research, Inc.
  11. 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.
  12. Ronald Lee & Jonathan Skinner, 1999. "Will Aging Baby Boomers Bust the Federal Budget?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(1), pages 117-140, Winter.
  13. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
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