Age structure and economic policy - The case of saving and growth

Abstract

The age structure of the population affects aggregate saving, which affects growth through investment. Growth in turn is influenced by other age structure effects and feeds back into aggregate saving by well known life cycle mechanisms. Some of these feedbacks are generally ignored in empirical work. Especially the age structure effect on macroeconomic variables is a commonly overlooked, yet easily accessible factor useful for prediction, policy evaluation and design. The connection between age structure, savings and growth in the OECD from 1950 to 1990 illustrates how policy analysis that ignores the macroeconomic effects and feedbacks from age structure changes is liable to lead to faulty and potentially costly conclusions about policy issues.