Working Paper: NBER ID: w8808
Authors: David E. Bloom; David Canning; Bryan Graham
Abstract: We add health and longevity to a standard model of life cycle saving and show that, under plausible assumptions, increases in longevity lead to higher savings rates at every age, even when retirement is endogenous. In a stable population these higher savings rates are offset by increased old age dependency, but during the disequilibrium phase, when longevity is rising, the effect on aggregate savings rates can be substantial. Our results explain the boom in savings in East Asia during 1950-90 as a combination of rising life expectancy and falling youth dependency, though they predict that savings in the region will return to more normal levels as populations age. We also find that falling life expectancies in Africa are associated with declining savings rates.
Keywords: longevity; life cycle savings; economic behavior
JEL Codes: E21; I12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increases in longevity (C41) | Higher savings rates (D14) |
| Higher savings rates (D14) | Longer working due to increased life expectancy (J29) |
| Rising longevity (J26) | Substantial aggregate effect on savings in East Asia (F62) |
| Falling life expectancies in Africa (O55) | Declining savings rates (D14) |
| Increased longevity (D15) | Higher proportion of elderly individuals who tend to dissaving (D14) |
| Life expectancy (J17) | Savings increase sharply up to age 65 (J26) |
| Life expectancy beyond age 65 (J26) | Effect levels off (C22) |