Consumption Structure, Welfare Goods and Retirement Income: Linking the Ageing Puzzles

22 Pages Posted: 25 Jan 2012

See all articles by Joaquim Oliveira Martins

Joaquim Oliveira Martins

OECD; University Paris-Dauphine - PSL

Najat el Mekkaoui De Freitas

Université Paris-Dauphine, Laboratoire d'Economie, DIAL ; Economic Research Forum (ERF)

Date Written: March 26, 2009

Abstract

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, a saving-capitalisation and a saving-longevity puzzles have been put forward in the literature. This paper analyses the links between these 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 public deficits (Ricardian equivalence) and the population structure. We found that the relative generosity of welfare systems have a significant negative impact on household saving rate. It can also explain why the increase in longevity does not have had in general a positive impact on the household saving ratio.

Keywords: Ageing, consumption, longevity, pensions, saving

JEL Classification: C68, D91, G10, J11, J26

Suggested Citation

Oliveira Martins, Joaquim and De Freitas, Najat el Mekkaoui, Consumption Structure, Welfare Goods and Retirement Income: Linking the Ageing Puzzles (March 26, 2009). Available at SSRN: https://ssrn.com/abstract=1991178 or http://dx.doi.org/10.2139/ssrn.1991178

Joaquim Oliveira Martins (Contact Author)

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University Paris-Dauphine - PSL ( email )

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Najat el Mekkaoui De Freitas

Université Paris-Dauphine, Laboratoire d'Economie, DIAL ( email )

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