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Demographics and savings: can we reconcile the evidence?

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  • David Miles

Abstract

It is well known that over the next few decades there will be significant changes in the demographic structures of nearly all developed countries; in the absence of massive immigration, or of catastrophic new fatal illnesses, by the middle of the next century the ratio of people of working age to those of retirement age will, in many countries, be only around one half the current level. Such dramatic demographic change could have a powerful impact upon saving behaviour in both the public and private sectors and upon asset prices and wages. But estimates of how great the effects will be differ substantially depending on what kind of evidence is used. This paper first shows that projections based on a calibrated, overlapping generations model of the economy where agents display life-cycle savings behaviour are similar in broad shape to projections based on panel data estimates of the relation between demographics and saving. But the implications for the impact of demographic change of evidence from household data sets are strikingly different. This paper presents an explanation of this and assesses how far alternative pieces of evidence can be reconciled. The implications for asset prices, savings rates, capital accumulation and labour productivity over the next fifty years are explored.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W97/06.

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Date of creation: Aug 1997
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Handle: RePEc:ifs:ifsewp:97/06

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Cited by:
  1. David Miles, 1997. "Financial markets, ageing and social welfare," Fiscal Studies, Institute for Fiscal Studies, vol. 18(2), pages 161-187, May.
  2. Kwack, Sung Yeung & Lee, Young Sun, 2005. "What determines saving rates in Korea?: The role of demography," Journal of Asian Economics, Elsevier, vol. 16(5), pages 861-873, October.
  3. Jagadeesh Gokhale & Laurence J. Kotlikoff, 1999. "The impact of Social Security and other factors on the distribution of wealth," Working Paper 9913, Federal Reserve Bank of Cleveland.
  4. Armbruster, Walter J. & Coyle, William T. & Gilmour, Brad, 2004. "Where Will Demographics Take the Asia-Pacific Food System?," 2004 Conference (48th), February 11-13, 2004, Melbourne, Australia 58368, Australian Agricultural and Resource Economics Society.
  5. Jagadeesh Gokhale & Laurence J. Kotlikoff & James Sefton & Martin Weale, 1998. "Simulating the transmission of wealth inequality via bequests," Working Paper 9811, Federal Reserve Bank of Cleveland.

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