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Population Aging, Fiscal Policies, and National Saving: Predictions for Korean Economy

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  • Young Jun Chun
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    Abstract

    This paper evaluates the effects of population aging and fiscal policies on national saving in Korean situation. For the prediction of the national savings rate of Korea for the next several decades, we employ a life-cycle model, which incorporates the generational accounting approach needed to assess the distribution of fiscal burden across generations. We found that the rapid population aging and long-term budgetary imbalance will substantially lower the national savings rate in Korea. A sensitivity analysis based on an alternative model, an altruistic family model, shows that these predictions are robust to the specification of altruism among generations. In addition, the estimation results of consumption functions with respect to various kinds of wealth suggest that the annuitization of wealth due to maturing of public pensions and introduction of reverse annuity mortgage is likely to further decrease the savings rate in the future.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12265.

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    Date of creation: May 2006
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    Handle: RePEc:nbr:nberwo:12265

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    1. Ilho Yoo & Alan J. Auerbach & Young Jun Chun, 2004. "The Fiscal Burden of Korean Reunification: A Generational Accounting Approach," Econometric Society 2004 Latin American Meetings, Econometric Society 313, Econometric Society.
    2. Auerbach, Alan J & Kotlikoff, Laurence J, 1992. " The Impact of the Demographic Transition on Capital Formation," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(2), pages 281-95.
    3. Auerbach, Alan J. & Chun, Young Jun, 2006. "Generational accounting in Korea," Journal of the Japanese and International Economies, Elsevier, vol. 20(2), pages 234-268, June.
    4. Bovenberg, A.L. & Rele, H.J.M. ter, 1999. "Generational accounts for the Netherlands: An update," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80405, Tilburg University.
    5. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 315-407.
    6. Guest, R.S. & McDonald, I.M., 1999. "Demographic Change in Asia: the Impact on Optimal National Saving, Investment and the Current Account," Department of Economics - Working Papers Series, The University of Melbourne 726, The University of Melbourne.
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