Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving

We examine whether the aging of the U.S. population adds force to traditional arguments for boosting national saving and conclude--perhaps surprisingly--that it may not. Aging boosts the demands on future resources, but it also changes the rate of return the U.S. economy can expect from saving. We f...

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Bibliographic Details
Published in:The Journal of economic perspectives 2000-07, Vol.14 (3), p.57-74
Main Authors: Elmendorf, Douglas W., Sheiner, Louise M.
Format: Article
Language:English
Subjects:
Aging
Budget surplus
Consumer economics
Consumption
Demographic change
Fertility
Fiscal policy
Government
Medicare
National savings
Older adults
Population
Population ageing
Population aging
Return on capital
Savings
Social security financing
Statistics
Steady state economies
Sustainable consumption
Symposium: Fiscal Policy
U.S.A
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Summary:We examine whether the aging of the U.S. population adds force to traditional arguments for boosting national saving and conclude--perhaps surprisingly--that it may not. Aging boosts the demands on future resources, but it also changes the rate of return the U.S. economy can expect from saving. We find that the net effect on desired saving is small: some specifications imply that present consumption should fall by a fraction of 1 percent; others imply that consumption should actually increase. Thus, it is optimal to allow future cohorts to bear much/all of the burden of population aging.
ISSN:0895-3309
1944-7965
DOI:10.1257/jep.14.3.57