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Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis

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  • Jagadeesh Gokhale

    (Federal Reserve Bank of Cleveland)

  • Laurence J. Kotlikoff

    (Boston University)

  • John Sabelhaus

    (Congressional Budget Office)

Abstract

Since 1980, the U.S. net national saving rate has averaged less than half the rate observed in the 1950s and 60s. This paper develops a unique cohort data set to study the decline in U.S. national saving. It decomposes postwar changes in U.S. saving into those due to changes in cohort-specific consumption propensities, those due to changes in the intergenerational distribution of resources, those due to changes in government spending on goods and services, and those due to changes in demographics. Our findings are striking. The decline in U.S. saving can be traced to two factors: The redistribution of resources from young and unborn generations with low or zero propensities to consume toward older generations with high consumption propensities, and a significant increase in the consumption propensities of older Americans. Most of the redistribution to the elderly reflects the growth in Social Security, Medicare, and Medicaid benefits. The increase in the elderly's consumption propensities may also reflect government policy, namely the fact that Social Security, Medicare, and Medicaid benefits are paid in the form of annuities and that, in the case of Medicare and Medicaid, the annuities are in-kind and must, therefore, be consumed.

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Bibliographic Info

Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 27 (1996)
Issue (Month): 1 ()
Pages: 315-407

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Handle: RePEc:bin:bpeajo:v:27:y:1996:i:1996-1:p:315-407

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Keywords: macroeconomics; Postwar Decline; U.S. Saving; Cohort Analysis;

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References

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  1. Joseph G. Altonji & Fumio Hayashi & Laurence J. Kotlikoff, 1989. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," NBER Working Papers 3046, National Bureau of Economic Research, Inc.
  2. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," UCLA Economics Working Papers, UCLA Department of Economics 151, UCLA Department of Economics.
  3. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus & David N. Weil, 1994. "The annuitization of Americans' resources: a cohort analysis," Working Paper, Federal Reserve Bank of Cleveland 9413, Federal Reserve Bank of Cleveland.
  4. Alan J. Auerbach & Laurence J. Kotlikoff & David N. Weil, 1992. "The Increasing Annuitization of the Elderly- Estimates and Implications for Intergenerational Tranfers, Inequality, and National Saving," NBER Working Papers 4182, National Bureau of Economic Research, Inc.
  5. Barry Bosworth & Gary Burtless & John Sabelhaus, 1991. "The Decline in Saving: Some Microeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 183-256.
  6. Orazio P. Attanasio, 1998. "Cohort Analysis of Saving Behavior by U.S. Households," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 33(3), pages 575-609.
  7. Laurence Kotlikoff, 1993. "From deficit delusion to the Fiscal Balance Rule: Looking for an economically meaningful way to assess fiscal policy," Journal of Economics, Springer, Springer, vol. 58(1), pages 17-41, December.
  8. Laurence J. Kotlikoff & Laurence J. Kotlikoff & Willi Leibfritz, 1999. "From Deficit Delusion to the Fiscal Balance Rule: Looking for an Economically Meaningful Way to Assess Fiscal Policy," NBER Chapters, National Bureau of Economic Research, Inc, in: Generational Accounting around the World, pages 9-30 National Bureau of Economic Research, Inc.
  9. Joseph G. Altonji & Fumio Hayashi & Laurence J. Kotlikoff, 1995. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 65, Boston University, Institute for Economic Development.
  10. Orazio Attanasio, 1993. "A cohort analysis of saving behaviour by US households," IFS Working Papers, Institute for Fiscal Studies W93/04, Institute for Fiscal Studies.
  11. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 553, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Michael J. Boskin & Lawrence J. Lau, 1988. "An Analysis of Postwar U.S. Consumption and Saving: Part I -- The Model and Aggregation," NBER Working Papers 2605, National Bureau of Economic Research, Inc.
  13. Michael J. Boskin & Lawrence J. Lau, 1988. "An Analysis of U.S. Postwar Consumption and Saving: Part II -- Empirical Results," NBER Working Papers 2606, National Bureau of Economic Research, Inc.
  14. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
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  16. Lawrence Summers & Chris Carroll, 1987. "Why Is U.S. National Saving So Low?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 607-642.
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  1. Dissecting Elizabeth Warren’s argument for expanding Social Security
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