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Longevity and Aggregate Savings

Author

Listed:
  • Eytan Sheshinski
Abstract
For the last fifty years, countries in Asia and elsewhere have witnessed a surge in aggregate savings per capita. Some empirical studies attribute this trend to the increases in life longevity of the populations of these countries. It has been argued that the rise in savings is short-run, eventually to be 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' consumption and chosen retirement age response to changes in longevity from which changes in individual savings are derived. Conditions on the age-profile of improvements in survival probabilities are shown to be necessary in order to predict the direction of this response. Population theory (e.g. Coale, 1952) is used to derive the steady-state population age density function, enabling the aggregation of individual response functions and a comparative steady-state analysis. Under certain conditions, increased longevity is shown to increase aggregate savings per capita. These conclusions pertain to an economy with a competitive annuity market. The absence of such market compels individuals to leave unintended bequests, whose size depends on the (random) age of death. While an increase in longevity raises individual savings for given endowments, it is shown that the effect on expected steady-state aggregate savings, taking into account the endogenous ergodic distribution of endowments, cannot be determined a-priori.

Suggested Citation

  • Eytan Sheshinski, 2006. "Longevity and Aggregate Savings," CESifo Working Paper Series 1828, CESifo.
    • Handle: RePEc:ces:ceswps:_1828
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Eytan Sheshinski, 2005. "Longevity and Aggregate Savings," Discussion Paper Series dp403, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    2. 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.
    3. Linden, Mikael, 2022. "Retirement duration maximization with survival time expectations," MPRA Paper 115903, University Library of Munich, Germany.
    4. 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.
    5. Antoine Bommier, 2008. "Rational Impatience ?," Working Papers hal-00441880, HAL.
    6. Bommier, Antoine, 2009. "Mortality Decline and Aggregate Wealth Accumulation," TSE Working Papers 09-050, Toulouse School of Economics (TSE).
    7. 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.
    8. 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.
    9. Johan Fourie, 2012. "The wealth of the Cape Colony: Measurements from probate inventories," Working Papers 268, Economic Research Southern Africa.
    10. 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.
    11. 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.
    12. Eytan Sheshinski, 2006. "Note on Longevity and Aggregate Savings," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 353-356, July.
    13. 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.
    14. Shesshinski, Eytan, 2006. "Longevity and Aggregate Savings," MPRA Paper 55165, University Library of Munich, Germany, revised Mar 2007.
    15. 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.
    16. 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.
    17. Torben Andersen, 2014. "Intergenerational redistribution and risk sharing with changing longevity," Journal of Economics, Springer, vol. 111(1), pages 1-27, February.
    18. 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.
    19. Torben M. Andersen & Marias H. Gestsson, 2010. "Longevity, Growth and Intergenerational Equity - The Deterministic Case," Economics wp52, Department of Economics, Central bank of Iceland.
    20. 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.
    21. 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.

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    More about this item

    Keywords

    longevity; annuities; life cycle savings; retirement age; steady-state; aggregate savings;
    All these keywords.

    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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