by Ronald Lee, Andrew Mason, and Timothy Miller
AbstractA transition in a Third World society from a system of familial support for the elderly to a system of individual responsibility through saving and investment would have effects in some respects similar to a transition from a Pay As You Go public pension system to a funded system. Such a transition might lead to "super-saving" as individuals find themselves behind the normal life cycle trajectory of asset accumulation, and as the elderly continue to be supported by their adult children (or the public pension) so that their dissaving does not offset that of the working age population. But there are other factors at work as well, and the net effect is difficult to intuit. This paper uses a demographically realistic model which incorporates life cycle saving motives in the presence of changing familial or public transfers. We use it to simulate the effects of the change from transfer-based old-age support to a funded system, for Taiwan and for the U.S., and examine changes in aggregate saving and capital accumulation. We consider a variety of possibilities regarding the degree of foresight and the degree to which pre-existing transfer obligations are honored.
Paper presented at the 2000 Annual Meetings of the Population Association of America in Los Angeles.