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Longevity and Aggregate Savings

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  • Shesshinski, Eytan

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

  • Shesshinski, Eytan, 2006. "Longevity and Aggregate Savings," MPRA Paper 55165, University Library of Munich, Germany, revised Mar 2007.
    • Handle: RePEc:pra:mprapa:55165
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    File URL: https://mpra.ub.uni-muenchen.de/55165/2/MPRA_paper_55165.pdf
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    References listed on IDEAS

    as
    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.
    2. Eytan Sheshinski, 2007. "Introduction to The Economic Theory of Annuities," Introductory Chapters, in: The Economic Theory of Annuities, Princeton University Press.
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    11. Eytan Sheshinski, 2007. "The Economic Theory of Annuities," Economics Books, Princeton University Press, edition 1, volume 1, number 8536.
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