Life cycle saving and the demographic transition: the case of Taiwan.

Abstract

In this paper researchers consider how the demographic transition in Taiwan would affect aggregate savings under the assumption of pure life cycle saving. The researchers argue that demographic change over the transition leads to a substantial increase in the demand for life cycle wealth. A comparison of pre- and post- transition stationary states indicates that the demand for wealth would increase substantially and permanently over the transition. Since pretransitional old age was supported largely by family transfers a concurrent move from family transfers to funded pension systems would generate a larger increase in savings than there would have been had life cycle saving always been the rule. This shows that the demographic transition operating through the life cycle saving motive is capable of accounting for a substantial rise in saving rates and for very high levels of saving rates in Taiwan. In this regard it is believed that life cycle saving is important and that through it the massive demographic changes over the course of the demographic transition have influenced saving behavior and wealth accumulation and will continue to do so in the future.

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