Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis

92 Pages Posted: 1 Oct 1996  

Jagadeesh Gokhale

Cato Institute

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

John Sabelhaus

Investment Company Institute; Congressional Budget Office (CBO)

Date Written: May 1996

Abstract

Since 1980, the U.S. net national saving rate has averaged less than half the rate observed in the 1950s and 60s. This paper develops a unique cohort data set to study the decline in U.S. national saving. It decomposes postwar changes in U.S. saving into those due to changes in cohort-specific consumption propensities, those due to changes in the intergenerational distribution of resources, those due to changes in government spending on goods and services, and those due to changes in demographics. Our findings are striking. The decline in U.S. saving can be traced to two factors: The redistribution of resources from young and unborn generations with low or zero propensities to consume toward older generations with high consumption propensities, and a significant increase in the consumption propensities of older Americans. Most of the redistribution to the elderly reflects the growth in Social Security, Medicare, and Medicaid benefits. The increase in the elderly's consumption propensities may also reflect government policy, namely the fact that Social Security, Medicare, and Medicaid benefits are paid in the form of annuities and that, in the case of Medicare and Medicaid, the annuities are in-kind and must, therefore, be consumed.

Suggested Citation

Gokhale, Jagadeesh and Kotlikoff, Laurence J. and Sabelhaus, John, Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis (May 1996). NBER Working Paper No. w5571. Available at SSRN: https://ssrn.com/abstract=3550

Jagadeesh Gokhale

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

Laurence J. Kotlikoff (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4002 (Phone)
617-353-4449 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gaidar Institute for Economic Policy

Gazetny per. 5-3
Moscow, 125993
Russia

John Sabelhaus

Investment Company Institute ( email )

1401 H Street NW
Washington, DC 20005
United States

Congressional Budget Office (CBO) ( email )

Ford House Office Building
2nd & D Streets, SW
Washington, DC 20515-6925
United States

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