Longevity and Aggregate Savings
AbstractTwo salient features of modern economic growth are the rise in aggregate savings rates and the steady increase in life expectancy. This paper links these processes, showing that under certain conditions economic theory supports the hypothesis that increased longevity leads to higher aggregate savings in steady state. The analysis is based on a lifecycle model with uncertain longevity in which individuals choose an optimum consumption path and a retirement age. Conditions on the age-specific pattern of improvements in survival probabilities are shown to ensure that individual savings rise with longevity and that aggregation preserves this result. Population theory (Coale (1972)) is used to link the steady-state age density function and the population's growth rate to individuals' survival probabilities. The importance of a competitive annuity market in avoiding unintended bequests is underscored.
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Bibliographic InfoPaper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp519.
Date of creation: Sep 2009
Date of revision:
Other versions of this item:
- D1 - Microeconomics - - Household Behavior
- D6 - Microeconomics - - Welfare Economics
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- H0 - Public Economics - - General
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