The Impact of Population Aging on Savings, Investment and Growth in the OECD Area

Axel Börsch-Supan

No 512, Discussion Papers from Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre

Abstract: Goal of this paper is an assessment of the relevance of the various channels through which population aging affects saving and investment. In a first part, I collect evidence on age-saving, ageconsumption, and age-income profiles in order to project the supply of and the demand for funds, given no behavioral changes. However, due to many feedbacks that may change individual behavior and due to the rapid globalization of world capital markets, major capital market disequilibria are unlikely to evolve. The second part of the paper is therefore concerned with an equilibrium analysis in which a global rate of return equilibrates the demand for, and the supply of, funds. In the short run, until about the year 2010, demographic effects are more likely to increase rather than to decrease the supply of funds. This result, in contrast to earlier studies, rests on the fact that a relatively rich baby boom generation is now entering the high saving and high income years. This increase in demand will meet an essentially unchanged demand for funds. In the longer run, however, a rising capital labor ratio due to population aging is likely to depress the return to capital in the aging OECD countries, reducing savings at the same time as governments are tempted to increase their demand for funds to finance social expenditures.

Date: 1995
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