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Population Ageing In New Zealand: Implications for Living Standards and the Optimal Rate of Saving

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Abstract

Over the next 50 years, New Zealand’s population will age substantially. There has been wide debate about whether New Zealand should prepare for population ageing by increasing national savings. The debate had not, however, involved explicit consideration of possible time paths for savings, consumption, debt, and other relevant macroeconomic variables; nor have explicit principles been offered for determining which of these time paths are to be preferred. This paper addresses the question of choosing time paths through the use of a Ramsey-Solow model of optimal saving, adapted for investigating problems of population ageing. The results suggest that population ageing alone would not justify increases in national savings rates beyond those envisaged by current policy. The cost of ageing in terms of reduced real consumption is not large enough to justify large additional savings beyond those currently predicted, and the concomitant reduction in current consumption. The findings concerning national savings and living standards are robust to a variety of specifications of demographic conditions, interest rates, and productivity growth.

Suggested Citation

  • Ross Guest & John Bryant & Grant Scobie, 2003. "Population Ageing In New Zealand: Implications for Living Standards and the Optimal Rate of Saving," Treasury Working Paper Series 03/10, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:03/10
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-10/twp03-10.pdf
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    References listed on IDEAS

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    1. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-1075, December.
    2. Alan Auerbach & Bruce Baker & Laurence Kotlikoff & Jan Walliser, 1997. "Generational Accounting in New Zealand: Is There Generational Balance?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(2), pages 201-228, May.
    3. Galor, Oded & Zang, Hyoungsoo, 1997. "Fertility, income distribution, and economic growth: Theory and cross-country evidence," Japan and the World Economy, Elsevier, vol. 9(2), pages 197-229, May.
    4. Avner Ahituv, 2001. "Be fruitful or multiply: On the interplay between fertility and economic development," Journal of Population Economics, Springer;European Society for Population Economics, vol. 14(1), pages 51-71.
    5. Guest, R.S. & McDonald, I.M., 1999. "Ageing, Immigration and Optimal National Saving in Australia. a," Department of Economics - Working Papers Series 690, The University of Melbourne.
    6. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
    7. Ronald Lee & Ryan Edwards, 2002. "The Fiscal Effects of Population Aging in the U.S.: Assessing the Uncertainties," NBER Chapters,in: Tax Policy and the Economy, Volume 16, pages 141-180 National Bureau of Economic Research, Inc.
    8. Polackova, Hana, 1997. "Population aging and financing of government liabilities in New Zealand," Policy Research Working Paper Series 1703, The World Bank.
    9. repec:fth:harver:1490 is not listed on IDEAS
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    Cited by:

    1. Grant Scobie & John Gibson & Trinh Le, 2004. "Saving for Retirement: New Evidence for New Zealand," Treasury Working Paper Series 04/12, New Zealand Treasury.
    2. Emma Gorman & Grant M Scobie & Yongjoon Paek, 2013. "Measuring Saving Rates in New Zealand: An Update," Treasury Working Paper Series 13/04, New Zealand Treasury.
    3. Ross Guest & Grant Scobie & John Bryant, 2003. "Population Ageing in New Zealand: The Impact on Living Standards and the Optimal Rate of Saving with a Flexible Real Exchange Rate," Treasury Working Paper Series 03/34, New Zealand Treasury.
    4. Ross Guest, 2013. "Intergenerational Smoothing of New Zealand’s Future Fiscal Costs," Treasury Working Paper Series 13/12, New Zealand Treasury.

    More about this item

    Keywords

    consumption; saving; inter-temporal paths; Ramsey model; population ageing; New Zealand;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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