THE EFFECTS OF ECONOMIC AND POPULATION-GROWTH ON NATIONAL SAVING AND INEQUALITY

This is a progress report on ongoing research into the effects of econ omic and population growth on national saving rates and inequality. Th e theoretical basis for the investigation is the life cycle model of s aving and inequality. We report evidence that is conditional on the va lidity of the model, as well as evidence that casts doubt on it. Using time series of cross-sectional household surveys from Taiwan, Thailan d, Britain, and the United States, we show that it is possible to forc e a life cycle interpretation on the data on consumption, income, and saving, but that the evidence is not consistent with large rate-of-gro wth effects, whereby economic and population growth enhances rates of national saving. The well-established cross-country link between econo mic growth and saving cannot be attributed to life cycle saving, nor w ill changes in economic or population growth exert large effects on sa ving within individual countries. There is evidence in favor of the li fe cycle model's prediction that within-cohort inequality of consumpti on and of total income-though not necessarily inequality of earnings-s hould increase with the age of the cohort. Decreases in the population growth rate redistribute population toward older, more unequal, cohor ts, and can increase national inequality. We provide calculations on t he magnitude of these effects.