Consumption Structure, Welfare Goods and Retirement Income: Linking the Ageing Puzzles
IFD Working Paper No. 22
25 Pages Posted: 13 Jun 2008 Last revised: 11 Jun 2015
Date Written: June 1, 2008
While the empirical evidence tends to support some predictions of the life-cycle theory, a number of puzzles remain: an ageing-consumption, an ageing-saving and a saving-capitalisation puzzles have been put forward in the literature. This paper analyses the links between these three puzzles and develops a model relating usual life-cycle variables, social transfers (public health care expenditures and the generosity of pension systems) to the level of savings. A reduced-form model using a panel of 18 OECD countries is tested, confirming the proposed explanations for the puzzles, together with other factors such as Ricardian equivalence and the population structure. We found that the relative generosity of welfare systems have a significant negative impact on household saving rate.
Keywords: Ageing populations, Longevity, Consumption, Saving
JEL Classification: C68, D91, G10, J11, J26
Suggested Citation: Suggested Citation