Ageing, Immigration and Optimal National Saving in Australia. a.

By simulating a model of the optimal level of saving in a small open economy, this paper calculates the levels of optimal national saving for Australia for the period from 1997 to 2051. The calculations focus on the implications of making allowance for the ageing structure of the population. The effects of the ageing structure on employment participation, labour productivity and consumption demands are allowed for. Three different projections of future immigration are compared. The simulations suggest that in 1997 the optimal level of national saving in Australia is about nine percentage points of GDP greater than the actual rate of national saving. In the 50 years following 1997 the optimal saving response to the ageing of the Australian population is for national saving to increase up to the year 2011 and then to decline to the year 2051. If immigration is lower then the increase in optimal national saving is greater. Notwithstanding the large size of the shortfall of actual national saving below the optimal rate, we argue that the case for government intervention to increase national saving significantly above current levels is weak.