The Impact of Population Aging on the Socially Optimal Rate of National Saving: A Comparison of Australia and Japan.

This paper calculates, using a representative-agent model of a small open economy, the optimal rate of national saving for Australia and Japan for the period from the middle 1990s to 2050. The calculations focus on the implications of making allowance for the aging structure of the population in both economies on employment participation, consumption demands, and labor productivity. It is found that for Australia the optimal rate of national saving increases up to the year 2011 and then decreases. For Japan the optimal national saving rate decreases from the mid-1990s until 2020. The subsequent pattern to 2050 is generally one of decrease with the exact pattern being sensitive to the weight placed on the consumption demands of old people. The contrast in these patterns between Australia and Japan is due to the fact that, compared with Australia, the aging effect on the structure of population in Japan occurs sooner and will be of greater severity. Copyright 2001 by Blackwell Publishing Ltd