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Longevity and Aggregate Savings

  • Eytan Sheshinski

    ()

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.

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Paper provided by The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem in its series Discussion Paper Series with number dp403.

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Length: 16 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:huj:dispap:dp403
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  1. Wojciech Kopczuk & Joseph P. Lupton, 2004. "To leave or not to leave: the distribution of bequest motives," Finance and Economics Discussion Series 2004-33, Board of Governors of the Federal Reserve System (U.S.).
  2. David E. Bloom & David Canning & Bryan Graham, 2002. "Longevity and Life Cycle Savings," NBER Working Papers 8808, National Bureau of Economic Research, Inc.
  3. Peter Lorentzen & John McMillan & Romain Wacziarg, 2008. "Death and development," Journal of Economic Growth, Springer, vol. 13(2), pages 81-124, June.
  4. Eytan Sheshinski, 2007. "The Economic Theory of Annuities," Economics Books, Princeton University Press, edition 1, volume 1, number 8536, April.
  5. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June.
  6. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
  7. Eytan Sheshinski, 2006. "Note on Longevity and Aggregate Savings," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 353-356, 07.
  8. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers 1762, C.E.P.R. Discussion Papers.
  9. David M. Cutler, 2004. "Are the Benefits of Medicine Worth What We Pay for It? 15th Annual Herbert Lourie Memorial Lecture on Health Policy," Center for Policy Research Policy Briefs 27, Center for Policy Research, Maxwell School, Syracuse University.
  10. Zilcha, Itzhak & Friedman, Joseph, 1985. "Saving behavior in retirement when life horizon is uncertain," Economics Letters, Elsevier, vol. 17(1-2), pages 63-66.
  11. Ronald D Lee & Andrew Mason & Tim Miller, 1998. "Saving, Wealth, and Population," Working Papers 199805, University of Hawaii at Manoa, Department of Economics.
  12. 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.
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