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Longevity and Aggregate Savings

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  • Eytan Sheshinski

Abstract

Two salient features of modern economic growth are the rise in aggregate savings rates and the steady increase in life expectancy. This paper links these processes, showing that under certain conditions economic theory supports the hypothesis that increased longevity leads to higher aggregate savings in steady state. The analysis is based on a lifecycle model with uncertain longevity in which individuals choose an optimum consumption path and a retirement age. Conditions on the age-specific pattern of improvements in survival probabilities are shown to ensure that individual savings rise with longevity and that aggregation preserves this result. Population theory (Coale (1972)) is used to link the steady-state age density function and the population's growth rate to individuals' survival probabilities. The importance of a competitive annuity market in avoiding unintended bequests is underscored.

Suggested Citation

  • Eytan Sheshinski, 2009. "Longevity and Aggregate Savings," Discussion Paper Series dp519, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    • Handle: RePEc:huj:dispap:dp519
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    References listed on IDEAS

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    9. Eytan Sheshinski, 2005. "Longevity and Aggregate Savings," Discussion Paper Series dp403, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
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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. 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.
    3. Eytan Sheshinski, 2005. "Longevity and Aggregate Savings," Discussion Paper Series dp403, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    4. Bommier, Antoine, 2009. "Mortality Decline and Aggregate Wealth Accumulation," TSE Working Papers 09-050, Toulouse School of Economics (TSE).
    5. Klaus Prettner & David Canning, 2014. "Increasing life expectancy and optimal retirement in general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(1), pages 191-217, May.
    6. Johan Fourie, 2012. "The wealth of the Cape Colony: Measurements from probate inventories," Working Papers 268, Economic Research Southern Africa.
    7. Bloom, David E. & Canning, David & Mansfield, Richard K. & Moore, Michael, 2007. "Demographic change, social security systems, and savings," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 92-114, January.
    8. Eytan Sheshinski, 2006. "Note on Longevity and Aggregate Savings," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 353-356, July.
    9. Lei He & Zhengqi Wang, 2023. "The interaction effects of rising life expectancy and the public pension burden on aggregate savings and economic growth," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(2), pages 229-250, May.
    10. Shesshinski, Eytan, 2006. "Longevity and Aggregate Savings," MPRA Paper 55165, University Library of Munich, Germany, revised Mar 2007.
    11. Lei He & Shuyi Zhou & Zilan Liu, 2020. "How is aggregate household consumption affected jointly by longevity, pension, and aging? Theory and evidence," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(4), pages 499-512, December.
    12. Torben Andersen, 2014. "Intergenerational redistribution and risk sharing with changing longevity," Journal of Economics, Springer, vol. 111(1), pages 1-27, February.
    13. Pascual-Saez, Marta & Cantarero-Prieto, David & Pires Manso, José R., 2020. "Does population ageing affect savings in Europe?," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 291-306.
    14. Linden, Mikael, 2022. "Retirement duration maximization with survival time expectations," MPRA Paper 115903, University Library of Munich, Germany.
    15. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
    16. Lei He & Shuyi Zhou & Zilan Liu, 0. "How is aggregate household consumption affected jointly by longevity, pension, and aging? Theory and evidence," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 0, pages 1-14.
    17. Aylit T. 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.
    18. 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.
    19. Spånberg, Erik & Shahnazarian, Hovick, 2019. "The importance of the financial system for the current account in Sweden: A sectoral approach," International Economics, Elsevier, vol. 158(C), pages 91-103.
    20. Torben M. Andersen & Marias H. Gestsson, 2010. "Longevity, Growth and Intergenerational Equity - The Deterministic Case," Economics wp52, Department of Economics, Central bank of Iceland.
    21. 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.

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    More about this item

    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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