Consumption Structure, Welfare Goods and Retirement Income: Linking the Ageing Puzzles
22 Pages Posted: 25 Jan 2012
Date Written: March 26, 2009
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: Suggested Citation