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Longevity and Aggregate Savings

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  • Eytan Sheshinski

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Abstract

For the last fifty years, countries in Asia and elsewhere witnessed a surge in aggregate savings per capita. Many empirical studies attribute this trend to the highly significant increases in life longevity of the populations of these countries. Some argue that the rise in savings is short-run, to be eventually dissipated by the dissaving of the elderly, whose proportion in the population rises along with longevity. This paper examines whether these conclusions are supported by economic theory. A model of life cycle decisions with uncertain survival is used to derive individuals’savings and chosen retirement age response to changes in longevity. Conditions on the age-profile of improvements in survival probabilities are shown to be necessary in order to predict the direction of this response (the uneven history of age specific improvements in longevity is recorded by Cutler (2004)). Population theory (e.g. Coale (1952)) is used to derive the dependence of the steady-state population age density on longevity. This, in turn, enables the explicit aggregation of individual response functions and a comparative steady-state analysis. Sufficient conditions for a sustainable positive effect of increased longevity on aggregate savings per capita are then derived. The importance of the availability of insurance markets is briefly discussed.

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Bibliographic Info

Paper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp403.

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Length: 16 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:huj:dispap:dp403

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Keywords: longevity; life cycle savings; retirement age; aggregate savings;

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References

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  1. Wojciech Kopczuk & Joseph P. Lupton, 2007. "To Leave or Not to Leave: The Distribution of Bequest Motives," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 207-235.
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  5. Eytan Sheshinski, 2006. "Note on Longevity and Aggregate Savings," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 353-356, 07.
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  7. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June.
  8. David E. Bloom & David Canning & Bryan Graham, 2002. "Longevity and Life Cycle Savings," NBER Working Papers 8808, National Bureau of Economic Research, Inc.
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  10. Eytan Sheshinski, 2007. "The Economic Theory of Annuities," Economics Books, Princeton University Press, edition 1, volume 1, number 8536.
  11. Ronald D Lee & Andrew Mason & Tim Miller, 1998. "Saving, Wealth, and Population," Working Papers 199805, University of Hawaii at Manoa, Department of Economics.
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Cited by:
  1. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
  2. Kam-Ki Tang & Benjamin ShiJie Wong, . "The Ageing, Longevity and Crowding Out Effects on Private and Public Savings: Evidence from Dynamic Panel Analysis," MRG Discussion Paper Series 3409, School of Economics, University of Queensland, Australia.
  3. Aylit Tina Romm & Martha Wolny, 2012. "The Impact of Later Retirement Ages on Aggregate Household Savings and Saving Rates: An Analysis of OECD Countries," Working Papers 269, Economic Research Southern Africa.
  4. T. Paul Schultz, 2009. "The Gender and Generational Consquences of the Demographic Transition and Population Policy: An Assessment of the Micro and Macro Linkages," Working Papers 979, Economic Growth Center, Yale University.
  5. Gielen, A. C., 2007. "Working Hours Flexibility and Older Workers' Labor Supply," Discussion Paper 2007-49, Tilburg University, Center for Economic Research.
  6. David Bloom & David Canning & Rick Mansfield & Michael Moore, 2006. "Demographic Change, Social Security Systems, and Savings," PGDA Working Papers 1906, Program on the Global Demography of Aging.
  7. Owen O'Donnell & Federica Teppa & Eddy van Doorslaer, 2008. "Can subjective survival expectations explain retirement behaviour?," DNB Working Papers 188, Netherlands Central Bank, Research Department.
  8. Johan Fourie, 2012. "The wealth of the Cape Colony: Measurements from probate inventories," Working Papers 268, Economic Research Southern Africa.

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