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Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis

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Author Info
Jagadeesh Gokhale
Laurence J. Kotlikoff
John Sabelhaus

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Abstract

Since 1980, the U.S. net national saving rate has averaged less than half the rate observed in the 1950s and 60s. This paper develops a unique cohort data set to study the decline in U.S. national saving. It decomposes postwar changes in U.S. saving into those due to changes in cohort-specific consumption propensities, those due to changes in the intergenerational distribution of resources, those due to changes in government spending on goods and services, and those due to changes in demographics. Our findings are striking. The decline in U.S. saving can be traced to two factors: The redistribution of resources from young and unborn generations with low or zero propensities to consume toward older generations with high consumption propensities, and a significant increase in the consumption propensities of older Americans. Most of the redistribution to the elderly reflects the growth in Social Security, Medicare, and Medicaid benefits. The increase in the elderly's consumption propensities may also reflect government policy, namely the fact that Social Security, Medicare, and Medicaid benefits are paid in the form of annuities and that, in the case of Medicare and Medicaid, the annuities are in-kind and must, therefore, be consumed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5571.

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Date of creation: May 1996
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Handle: RePEc:nbr:nberwo:5571

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

References listed on IDEAS
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  1. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-91, April. [Downloadable!] (restricted)
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  2. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers 553, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  3. Joseph G. Altonji & Fumio Hayashi & Laurence J. Kotlikoff, 1993. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," NBER Working Papers 3046, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-2), pages 61-156. [Downloadable!]
  5. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, . "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," IPR working papers 95-22, Institute for Policy Resarch at Northwestern University.
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  6. Barry Bosworth & Gary Burtless & John Sabelhaus, 1991. "The Decline in Saving: Some Microeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1991-1), pages 183-256. [Downloadable!]
  7. Lawrence Summers & Chris Carroll, 1987. "Why Is U.S. National Saving So Low?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1987-2), pages 607-642. [Downloadable!]
  8. Laurence Kotlikoff, 1993. "From deficit delusion to the Fiscal Balance Rule: Looking for an economically meaningful way to assess fiscal policy," Journal of Economics, Springer, vol. 7(1), pages 17-41, December. [Downloadable!] (restricted)
  9. repec:fth:harver:1490 is not listed on IDEAS
  10. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus & David N. Weil, 1994. "The annuitization of Americans' resources: a cohort analysis," Working Paper 9413, Federal Reserve Bank of Cleveland. [Downloadable!]
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  11. Laurence J. Kotlikoff, 1989. "From Deficit Delusion to the Fiscal Balance Rule: Looking For an Economically Meaningful Way to Assess Fiscal Policy," NBER Working Papers 2841, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Orazio P. Attanasio, 1993. "A Cohort Analysis of Saving Behavior by U.S. Households," NBER Working Papers 4454, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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