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Longevity and Aggregate Savings

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  • Eytan Sheshinski

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Abstract

For the last fifty years, countries in Asia and elsewhere witnessed a surge in aggregate savings per capita. Many empirical studies attribute this trend to the highly significant increases in life longevity of the populations of these countries. Some argue that the rise in savings is short-run, to be eventually dissipated by the dissaving of the elderly, whose proportion in the population rises along with longevity. This paper examines whether these conclusions are supported by economic theory. A model of life cycle decisions with uncertain survival is used to derive individuals’savings and chosen retirement age response to changes in longevity. Conditions on the age-profile of improvements in survival probabilities are shown to be necessary in order to predict the direction of this response (the uneven history of age specific improvements in longevity is recorded by Cutler (2004)). Population theory (e.g. Coale (1952)) is used to derive the dependence of the steady-state population age density on longevity. This, in turn, enables the explicit aggregation of individual response functions and a comparative steady-state analysis. Sufficient conditions for a sustainable positive effect of increased longevity on aggregate savings per capita are then derived. The importance of the availability of insurance markets is briefly discussed.

Suggested Citation

  • Eytan Sheshinski, 2005. "Longevity and Aggregate Savings," Discussion Paper Series dp403, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  • Handle: RePEc:huj:dispap:dp403
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    References listed on IDEAS

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    1. Zilcha, Itzhak & Friedman, Joseph, 1985. "Saving behavior in retirement when life horizon is uncertain," Economics Letters, Elsevier, vol. 17(1-2), pages 63-66.
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    7. 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, September.
    8. Kinugasa, Tomoko & Mason, Andrew, 2007. "Why Countries Become Wealthy: The Effects of Adult Longevity on Saving," World Development, Elsevier, vol. 35(1), pages 1-23, January.
    9. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-732, August.
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    Cited by:

    1. Schultz, T. Paul, 2009. "The Gender and Generational Consequences of the Demographic Transition and Population Policy: An Assessment of the Micro and Macro Linkages," Working Papers 71, Yale University, Department of Economics.
    2. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
    3. Anne C. Gielen, 2009. "Working hours flexibility and older workers' labor supply," Oxford Economic Papers, Oxford University Press, vol. 61(2), pages 240-274, April.
    4. Johan Fourie, 2012. "The wealth of the Cape Colony: Measurements from probate inventories," Working Papers 268, Economic Research Southern Africa.
    5. Aylit Tina Romm & Martha Wolny, 2012. "The Impact of Later Retirement Ages on Aggregate Household Savings and Saving Rates: An Analysis of OECD Countries," Working Papers 269, Economic Research Southern Africa.
    6. Bloom, David E. & Canning, David & Mansfield, Richard K. & Moore, Michael, 2007. "Demographic change, social security systems, and savings," Journal of Monetary Economics, Elsevier, pages 92-114.
    7. Kam-Ki Tang & Benjamin ShiJie Wong, "undated". "The Ageing, Longevity and Crowding Out Effects on Private and Public Savings: Evidence from Dynamic Panel Analysis," MRG Discussion Paper Series 3409, School of Economics, University of Queensland, Australia.
    8. Owen O'Donnell & Federica Teppa & Eddy van Doorslaer, 2008. "Can subjective survival expectations explain retirement behaviour?," DNB Working Papers 188, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    longevity; life cycle savings; retirement age; aggregate savings;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D6 - Microeconomics - - Welfare Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H0 - Public Economics - - General

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