What determines savings? The question is timely and important.
The U.S. saving rate is less than half that of Japan, Germany, and
other developed countries, and the imbalance in saving rates across
countries is responsible, in large part for the imbalance in
international trade. This book examines a number of important
determinants of wealth accumulation, including retirement bequests,
and precautionary saving motives, demographics, the tax structure,
social security, and insurance institutions. Using a blend of
theory, empirical research and simulation methods, it reaches some
surprising conclusions about what determines savings.Kotlikoff
notes that most of U.S. wealth is due not to life cycle saving for
retirement but rather to bequests and other intergenerational
transfers. The process of passing wealth from one generation to the
next may be explained, in large part, because of imperfect annuity
arrangements.In addition to life span uncertainty, the author
points out other types of uncertainty such as uncertainty about
future medical expenditures can greatly stimulate saving. Fiscal
policies, such as unfunded social security, can dramatically alter
a country's wealth, although the process can take many years.
Unfortunately, Kotlikoff observes, official fiscal deficits are
intrinsically unreliable for measuring the government's stance of
fiscal policy. He also concludes that the baby busts currently
underway in the United States, Europe, and Japan are likely to
improve overall economic welfare despite their detrimental impacts
on social security systemsLaurence J. Kotlikoff is Professor of
Economics at Boston University and a Research Associate of the
National Bureau of Economic Research.
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