Our analysis of the determinants of the domestic savings rate in developing Asia over the period 1965-2007 shows that the most important determinants appear to be the dependency ratio between the elderly, income levels and the level of financial development. The literature on the impact of other components of the social safety net on the household savings rate is very scarce but non-existent. Thus, not only public pensions, but also other components of the social safety net can have a negative impact on the household savings rate.
An analysis of the determinants of household saving behavior in developed OECD countries. In this section, we discuss our analysis of the determinants of household saving behavior in developed OECD countries. AGE = age dependency ratio = the ratio of the elderly population (population aged 65 and over) to the working age population (population aged 20 to 64) (in percentage).
An Analysis of the Determinants of the Domestic Savings Rate in Asia's Developing Economies. In this section, we discuss our analysis of the determinants of the domestic savings rate in the developing economies of Asia. A possible explanation for the case of China is omitted factors such as the increase in the corporate savings rate during this period (IMF, 2009) and/or the distorted gender ratio of persons of marriageable age (Wei, 2009).
As expected, domestic savings rates are expected to decline by 2030 in the economies in which population aging is expected to proceed most rapidly.
Overall Conclusions and Policy Implications
Moreover, the projected decline in domestic savings rates from the 2000s to the 2030s in the rapidly aging economies ranges from 6.0 percentage points (Chinese Taipei) to 12.9 percentage points (Singapore), which is about the same or larger than other already aging economies . as Japan has experienced in the past 20 years. The more pronounced decline in developing Asia's domestic savings rate may be due to the fact that aging is expected to accelerate. Nevertheless, the fact that more than half (seven) of the economies in developing Asia are expected to show increases in their domestic savings rates suggests that the decline in domestic savings rates in developing Asia as a whole will continue only gradually, at least until 2040 , which means, for better or worse, that global imbalances are unlikely to be eliminated anytime soon.
In this section, we conducted an econometric analysis of the determinants of domestic saving rate in developing country Asia during the period 1960-2007 and found that the most important determinants of domestic saving rate in developing country Asia during the period 1960-2007 appear to be age structure of the population (especially the elderly dependency ratio), income levels and the level of financial development, and furthermore that the direction of the impact of each factor is more or less as expected. We then projected the future trends in the domestic savings rate in developing Asia over the period 2011-2030 and found that population aging will be the key determinant of the future trends in the domestic savings rate. However, we found that there will be substantial differences from economy to economy, with rapidly aging economies showing a sharp decline in their domestic savings rate in 2030, and less rapidly aging economies experiencing only a moderate downturn or no downturn in 2030 .
So it doesn't look like the savings rate in developing Asia as a whole will decline sharply for at least the next twenty years, meaning that global imbalances, for better or for worse, are unlikely to be eliminated anytime soon. . Thus, a two-pronged approach, simultaneously developing social safety nets and private capital markets, may be the most effective way to increase household consumption and prosperity.
Horioka, Charles Yuji, and Terada-Hagiwara, Akiko (2010), "The Determinants and Long-Term Projections of Savings Rates in Developing Asia," mimeo. Horioka, Charles Yuji, and Yin, Ting (2010), "A Panel Analysis of the Determinants of Household Savings in the OECD Countries: The Substitutability of Social Safety Nets and Credit Availability," mimeo, Institute for Social and Economic Research, Osaka University, Osaka, Japan. Glenn; Skinner, Jonathan; and Zeldes, Stephen P. 1995), "Precautionary Saving and Social Insurance," Journal of Political Economy, vol.
Ito, Hiro en Chinn, Menzie (2007), ‘East Asia and Global Disbalances: Saving, Investment, and Financial Development’, NBER Working Paper nr. Internationaal Monetair Fonds (2009), ‘Corporate Savings and Rebalancing in Asia’ in International Monetary Fund, ed., World Economic and Financial Surveys, Regional Economic Outlook, Asia and Pacific 2009 (Washington, D.C.: Internationaal Monetair Fonds). Jha, Shikha; Prasad, Eswar; en Terada-Hagiwara, Akiko (2009), “Saving in Asia: Issues for Rebalancing Growth”, ADB Economics Working Paper Series nr.
Kim, Soyoung and Lee, Jong-Wha (2008), "Demographic changes, saving and the current account: an analysis based on a VAR panel model", Japan and the World Economy, Vol. Lee, Jong-Wha and Hong, Kiseok (2010), "Economic Growth in Asia: Determinants and Prospects", forthcoming in ADB Economics Working Paper Series, Asian Development Bank, Manila, Philippines. Li, Hongbin; Zhang, Jie; and Zhang, Junsen (2007), “The effects of longevity and dependency rates on saving and growth: evidence from a cross-country panel”, Journal of Development Economics, Vol.
Modigliani, Franco and Sterling, Arlie Determinants of Private Saving with Special Reference to the Role of Social Security: Cross Country Tests," in Franco Modigliani and Richard Hemming, eds., Determinants of National Saving and Wealth (proceedings of a conference held by of the International Economic Association in Bergamo, Italy) (London: . Macmillan). Park, Donghyun and Shin, Kwanho (2009), "Savings, Investment and the Current Account Surplus in Developing Asia," ADB Economics Working Paper Series No. Terada-Hagiwara , Akiko (2009), “Explaining the Declining Savings Rate of Filipino Households,” ADB Economics Working Paper Series no.
Wei, Chang-Jin and Zhang, Xiaobo (2009), “The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China”, NBER Working Paper No. Development Outlook Database, Key Indicators (various issues) of Asian Development Bank 5/, Bank of Thailand 6/ and Bank Negara Malaysia 7/. Surpluses are positive and deficits are negative. Real interest rate RITN IFS, WDI and the Central Bank of the Republic of China.
Uncertainty of Public Pension and Precautionary Saving in Japan
Evidence from the Micro Data of Close-to-retirement Households Wataru Suzuki ∗ and Yanfei Zhou ∗∗
- Research Background and Literature Review
- Background
- Literature review
- Data and Empirical Model
- Data
- Empirical model
- Empirical Results
- Concluding Remarks
Recently, an increase in concerns about the sustainability of the public pension system has created great uncertainty for Japanese households. A key contribution of the JILPT study is to provide data on public pension uncertainty: the expected percentage change (APC) in public pension benefits from current benefit levels, and the ideal amount (IA) of public pensions for retirement . Recently, growing concerns about the sustainability of the public pension system have made it a more important uncertainty factor for Japanese households.
In addition to this rapid aging process, the stagnation of economic growth in the last two decades has worsened the fiscal situation of the public pension system. Due to the considerable political power of the elderly population, until the 1994 reform, the public pension budget was mainly balanced by increasing the contribution rate. As Horioka (1990) warned, uncertainty in the future provisions of the Japanese public pension system will cause Japanese households to heavily discount future benefits and oversave.
3 The public pension system was regulated by law to be reformed once every five years, based on forecasts of the system's future financial situation. As a whole, empirical studies using employment or subject earnings variance as a proxy for income risk find little evidence in favor of the preventive savings model. On the other hand, empirical studies using the variance of the income of homogeneous groups as a measure of income risk have generally obtained results that support the precautionary savings model.
First, we use more specific and quantitative measures of public pension uncertainty rather than the abstract, four-choice dummy variable used in Murata (2003). Our second candidate measure of public pension uncertainty is the expected value change (AVC) of the public pension, which is equal to the APC multiplied by the IA of the public pension at retirement. However, the IA is constructed by multiplying the ideal size of the cost of living in retirement by the ideal funding rate for the public pension benefit.7.
The distribution of the expected change in the public pension in terms of both percentage change and value change is shown in Figure 2. A supporting condition of the preventive savings model is that uncertainty σ is positively related to the wealth-to-income ratio. However, the relationship between the wealth-to-income ratio and pension insecurity appears to be rather weak with regard to the size of the coefficients (less than –0.2).
OD is the excess of discounting future pension benefits, defined as the difference between households' expected percentage change (or change in value) of pension and the government's projected percentage change (or change in value). Our simulations show that about 10% of net financial assets and 5% of gross financial assets of households close to retirement are held as a precaution against public pension uncertainty.
Estimation of Permanent Income
Simulation of the Government’s Planned Pension Benefit Change
Democratic Party Manifesto 2009 (in Japanese), full text is available from the following website: http://www.dpj.or.jp/special/manifesto2009/pdf/manifesto_2009.pdf. Journal of the Japanese and International Economies Retirement of Baby-boomers and Japanese Household Saving Rate” (in Japanese), Higuchi, Y. Retirement of Baby-boomers and Japanese Economy, Nihon Hyoronsha, Tokyo, 235-252.
