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

Elmendorf, Douglas W.; Sheiner, Louise M.

doi:10.1257/jep.14.3.57

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Journal of Economic Perspectives: Vol. 14 No. 3 (Summer 2000)

JEP Volume. 14, Issue 3 | left

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

Article Citation

Elmendorf, Douglas W., and Louise M. Sheiner. 2000. "Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving." Journal of Economic Perspectives, 14(3): 57-74.

DOI: 10.1257/jep.14.3.57

Abstract

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.

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Authors

Elmendorf, Douglas W. (US Dept of the Treasury)
Sheiner, Louise M. (Federal Reserve Board of Governors)

JEL Classifications

E62: Fiscal Policy
H55: Social Security and Public Pensions
E21: Macroeconomics: Consumption; Saving; Wealth

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