Demographic change, social security systems, and savings

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2006.12.004 Byline: David E. Bloom (a), David Canning (a), Richard K. Mansfield (b), Michael Moore (c) Keywords: Savings; Demographic change; Population economics; Social security systems Abstract: In theory, improvements in healthy life expectancy should generate increases in the average age of retirement, with little effect on savings rates. In many countries, however, retirement incentives in social security programs prevent retirement ages from keeping pace with changes in life expectancy, leading to an increased need for life-cycle savings. Analyzing a cross-country panel of macroeconomic data, we find that increased longevity raises aggregate savings rates in countries with universal pension coverage and retirement incentives, though the effect disappears in countries with pay-as-you-go systems and high replacement rates. Author Affiliation: (a) Harvard University, School of Public Health, 667 Huntington Avenue, Boston, MA 02115, USA (b) Yale University, USA (c) Queen's University, Belfast, Northern Irelank, UK Article History: Received 4 October 2006; Revised 16 November 2006; Accepted 6 December 2006 Article Note: (footnote) [star] Earlier versions of this paper were presented at the Center for Population Economics workshop at the University of Chicago, and the 2006 annual meeting of the Population Association of America. The authors are grateful to John Laitner for thoughtful comments, and to Meghan Tieu for excellent research assistance. The National Institute of Aging provided support for this research (Grant no. 1 P30 AG024409-01).