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Consumption Structure, Welfare Goods and Retirement Income: Linking the Ageing Puzzles

  • El Mekkaoui de Freitas, Najat
  • Martins, Joaquim Oliveira

While the empirical evidence tends to support some predictions of the life-cycle theory, a number of puzzles remain: an ageing-consumption, an ageing-saving, a saving-capitalisation and a saving-longevity puzzles have been put forward in the literature. This paper analyses the links between these puzzles and develops a model relating usual life-cycle variables, social transfers (public health care expenditures and the generosity of pension systems) to the level of savings. A reduced-form model using a panel of 18 OECD countries is tested, confirming the proposed explanations for the puzzles, together with other factors such as public deficits (Ricardian equivalence) and the population structure. We found that the relative generosity of welfare systems have a significant negative impact on household saving rate. It can also explain why the increase in longevity does not have had in general a positive impact on the household saving ratio.

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File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/2343/1/NEM_JOM-Age_Saving_rev3-1-1.pdf
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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/2343.

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Date of creation: 2008
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Publication status: Published in Cahiers de la Chaire "Les Particuliers face au Risques", 2008
Handle: RePEc:dau:papers:123456789/2343
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  1. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
  2. Alain de Serres & Florian Pelgrin, 2002. "The Decline in Private Saving Rates in the 1990s in OECD Countries: How Much Can be Explained by Non-Wealth Determinants?," OECD Economics Department Working Papers 344, OECD Publishing.
  3. Michael Hurd & Susann Rohwedder, 2004. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," Working Papers wp069, University of Michigan, Michigan Retirement Research Center.
  4. Axel H. Boersch-Supan & Joachim K. Winter, 2001. "Population Aging, Savings Behavior and Capital Markets," NBER Working Papers 8561, National Bureau of Economic Research, Inc.
  5. David E. Bloom & David Canning & Rick Mansfield & Michael Moore, 2006. "Demographic Change, Social Security Systems, and Savings," NBER Working Papers 12621, National Bureau of Economic Research, Inc.
  6. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  7. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
  8. Feldstein, Martin, 1996. "Social Security and Saving: New Time Series Evidence," National Tax Journal, National Tax Association, vol. 49(2), pages 151-64, June.
  9. Shankha Chakraborty, 2002. "Endogenous Lifetime and Economic Growth," University of Oregon Economics Department Working Papers 2002-03, University of Oregon Economics Department, revised 26 Jan 2002.
  10. Michael D. Hurd & Susann Rohwedder, 2006. "Some Answers to the Retirement-Consumption Puzzle," NBER Working Papers 12057, National Bureau of Economic Research, Inc.
  11. David E. Bloom & David Canning & Bryan Graham, 2003. "Longevity and Life-cycle Savings," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(3), pages 319-338, 09.
  12. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
  13. Joaquim Oliveira Martins & Frédéric Gonand & Pablo Antolín & Christine de la Maisonneuve & Kwang-Yeol Yoo, 2005. "The Impact of Ageing on Demand, Factor Markets and Growth," OECD Economics Department Working Papers 420, OECD Publishing.
  14. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, 07.
  15. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
  16. Joaquim Oliveira Martins & Christine de la Maisonneuve, 2006. "The drivers of public expenditure on health and long-term care: An integrated approach," OECD Economic Studies, OECD Publishing, vol. 2006(2), pages 115-154.
  17. Bosworth, Barry & Burtless, Gary, 2004. "Pension Reform and Saving," National Tax Journal, National Tax Association, vol. 57(3), pages 703-27, September.
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