Ronald Lee and Andrew Mason, 2007 "Consumption, Saving and Capital Accumulation as Age Distributions Change" Annual Meeting of the Population Association of America, New York City, March 28-31. An earlier version of this paper was presented at the workshop on Population Aging and Economic Growth, Harvard University, Cambridge MA, May 18-19, 2007. Revised August 15, 2008.
Over the demographic transition changes in population age distribution interact with age patterns of production and consumption to generate the first and second dividends. The second dividend arises from induced variations in aggregate saving and wealth holding, and depends on the relative size and upward or downward direction of intergenerational transfers in an economy. We draw on National Transfer Accounts estimates of transfers, labor productivity, and consumption by age for a number of countries to assess these effects, and estimate the first and second dividends. We derive concrete results for several different theoretical approaches and models. First, we analyze comparative golden rule steady states. Second, we simulate three different dynamic economic models of saving, life cycle consumption, and economic growth over the transition: individualistic life cycle saving; interdependent altruistic sharing; and an optimizing social planner. We find that all three simulations exhibit a second dividend, demonstrating that it is robust, although the size and timing may differ depending on specific institutions and behavior.