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An Econometric Examination of the Impact of Population Ageing on Personal Savings in Canada

Author

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  • Maxime Fougère
  • Marcel Mérette

Abstract

It is well known that over the next several decades, important demographic changes will occur in most industrialised countries. As the baby-boom generation reaches the age of retirement, the share of the population aged 65 and over will increase rapidly. There is a growing concern that the increasing proportion of elderly will create important macroeconomic problems and pose important public policy challenges. A key concern revolves around the possible consequences of a prediction of the life-cycle model, namely that population ageing will put downward pressure on private savings. In this paper, we estimate an aggregate personal savings rate equation for Canada, which captures the effects of the changing age structure of the population. A cointegration relationship is found and cannot be rejected at a 1% critical level. The impact of population ageing is also simulated using recent demographic projections until 2050. Simulation results from the estimated econometric model suggest that by 2050, the direct effect of population ageing may contribute to a reduction of the personal savings rate of close to 50%. Our results thus support a key prediction of the life-cycle model and testify to the usefulness of computable overlapping-generations models in investigating the general equilibrium effects of population ageing in Canada. C'est un fait reconnu qu'au cours des prochaines décennies, la plupart des pays industrialisés subiront d'importants changements démographiques. À mesure que la génération des baby-boomers approchera l'âge de la retraite, la proportion de la population âgée de 65 ans et plus croîtra rapidement. De plus en plus d'observateurs croient que l'accroissement de la proportion des personnes âgées dans la population pourrait créer de graves problèmes macroéconomiques et poser d'importants défis pour les politiques publiques. Une de ces préoccupations concerne la pression à la baisse sur l'épargne privée conséquente à ces changements démographiques, telle que prédit par la théorie du cycle de vie. Dans cet article, nous estimons une équation de l'épargne personnelle agrégée qui prend en considération les effets provenant des changements de la pyramide d'âge de la population. L'estimation trouve une relation de cointégration qui ne peut être rejetée au seuil critique de 1%. L'impact du vieillissement de la population est aussi simulé à l'aide de projections démographiques disponibles jusqu'à l'an 2050. Les résultats de simulation du modèle économétrique suggèrent que d'ici 2050, le vieillissement de la population pourrait contribuer à une baisse du taux de l'épargne personnelle de près de 50%. Nos résultats confirment donc une prédiction clé de la théorie du cycle de vie, et supportent l'utilisation de modèles à générations chevauchantes dans l'examen des effets d'équilibre général du vieillissement de la population au Canada.

Suggested Citation

  • Maxime Fougère & Marcel Mérette, "undated". "An Econometric Examination of the Impact of Population Ageing on Personal Savings in Canada," Working Papers-Department of Finance Canada 1999-03, Department of Finance Canada.
  • Handle: RePEc:fca:wpfnca:1999-03
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