Health, Pension Benefits and Longevity: How They Affect Household Savings?

Abstract

This paper analyses the impact of health, pension systems and longevity on savings. It uses a simple life-cycle model embodying social transfers (health care and pension expenditures) and changes in longevity to determine the level of household savings. From this model, we derived an econometric specification, augmented with the effects of public budget balances. The model is estimated for a panel of 22 OECD countries for the period 1970-2009. Our principal result is that, from the point of view of incentive to save, health transfers have a similar impact as pension replacement rates. Therefore, welfare reforms that reduce replacement rates without reforming health system may not have all the expected impact on household savings. In line with life-cycle theory, we found that longevity increases saving ratios.

Keywords: Ageing, consumption, health, longevity, pension systems, saving

JEL Classification: D91, I13, J1, J11, J26