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The Ageing, Longevity and Crowding Out Effects on Private and Public Savings

  • Benjamin Wong
  • Kam Ki Tang

    ()

Life-cycle theory predicts ageing exerting long-term macroeconomic impacts through the reduction of private savings. However, empirical research studying macroeconomic determinants of savings generally regard age dependency as the sole measure of ageing, but overlook longevity, which can also give rise to population ageing but exerts an opposite impact on private savings. This paper addresses this potential bias by considering the joint effects age dependency and longevity have on savings. In contrast to the wider literature, not only private savings, but also public savings was studied. Applying dynamic panel models to a dataset of 55 countries over 1972-2004, age dependency was found to exert a negative effect on private savings. However, some of these reductions can potentially be offset by increased longevity. The study also revealed some level of crowding out of private savings by changes in public savings and finds that the Ricardian Equivalence Hypothesis cannot be entirely dismissed.

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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2010-12.

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Length: 38 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:een:camaaa:2010-12
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