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

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  • Young Jun Chun

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.

Suggested Citation

  • Young Jun Chun, 2006. "Population Aging, Fiscal Policies, and National Saving: Predictions for Korean Economy," NBER Working Papers 12265, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12265
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    1. A. Bovenberg & Harry Rele, 2000. "Generational Accounts for The Netherlands: An Update," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 411-430, August.
    2. Mr. Ian S McDonald & Serge Bésanger & Ross Guest, 2000. "Demographic Change in Asia: The Impacton Optimal National Saving, Investment, and the Current Account," IMF Working Papers 2000/115, International Monetary Fund.
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    4. 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.
    5. Alan J. Auerbach & Young Jun Chun & Ilho Yoo, 2005. "The Fiscal Burden of Korean Reunification: A Generational Accounting Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 62-97, March.
    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 726, The University of Melbourne.
    7. 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.
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    Cited by:

    1. Kim, Euijune & Hewings, Geoffrey J.D. & Lee, Changkeun, 2016. "Impact of educational investments on economic losses from population ageing using an interregional CGE-population model," Economic Modelling, Elsevier, vol. 54(C), pages 126-138.

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    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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