Population Aging, Fiscal Policies, and National Saving

Young Jun Chun

in Fiscal Policy and Management in East Asia

Published by University of Chicago Press

Published in print November 2007 | ISBN: 9780226386812
Published online February 2013 | e-ISBN: 9780226387062 | DOI:
Population Aging, Fiscal Policies, and National Saving

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While the current proportion of old-age population of Korea is lower than in other OECD countries, the speed of population aging is very high. More old-age dependents relative to workers resulting from population aging suggests the likelihood of more consumption relative to income and, therefore, less national saving. Increase in the old-age dependency ratio substantially affects fiscal policy. Government expenditures such as public pension benefits and medical insurance benefits will increase rapidly as the population is aging. This chapter examines the effects of population aging and fiscal policies on national savings in Korea. It uses a life-cycle model, which incorporates the generational accounting approach needed to assess the distribution of fiscal burden across generations, to predict the national savings rate of Korea for the next several decades. The chapter also evaluates the effects of change in asset composition, such as the annuitization of assets resulting from maturing of public pensions and the introduction of reverse annuity mortgages through the estimation of consumption functions, which enables comparison of elasticity of consumption with respect to various kinds of wealth.

Keywords: Korea; population aging; fiscal policy; national savings; fiscal burden; public pensions; reverse annuity mortgages; consumption; wealth; annuitization

Chapter.  13316 words.  Illustrated.

Subjects: Business and Management

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