The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect

Precautionary Saving in the Small and in the Large

https://www.nber.org/system/files/working_papers/w17351/w17351.pdf

Capital Flow Waves: Surges, Stops, Flight, and Retrenchment

This paper estimates a life cycle model of labour supply, retirement, and savings behaviour in which future health status and wages are uncertain. Individuals face a fixed cost of work and cannot borrow against future labour, pension, or Social Security income. The method of simulated moments is used to match the life cycle profiles of labour force participation, hours worked, and assets that are estimated from the data to those that are generated by the model. The model establishes that the tax structure of the Social Security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65. Removing the tax wedge embedded in the Social Security earnings test for individuals aged 65 and older would delay job exit by almost one year. By contrast, Social Security benefit levels, health, and borrowing constraints are less important determinants of job exit at older ages. For example, reducing Social Security benefits by 20% would cause workers to delay exit from the labour force by only three months.

The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour

All data and codes necessary to replicate results of the article. Also includes the data for figures.

Code and data files for "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006"

http://users.econ.umn.edu/~fperri/papers/usa2.pdf

Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006 *

https://martinfloden.net/files/Domeij%20D%20-%20Floden%20M%20-%20RED%202006.pdf

The labor-supply elasticity and borrowing constraints: Why estimates are biased

https://martinfloden.net/files/Floden%20M%20-%20Linde%20J%20-%20RED%202001.pdf

Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?

https://martinfloden.net/files/Floden%20M%20-%20JME%202001.pdf

The effectiveness of government debt and transfers as insurance

We use the neoclassical growth framework to model international capital flows in a world with exogenous demographic change. We compare model implications and actual current account data and find that the model explains a small but significant fraction of capital flows between OECD countries, in particular after 1985. 1. INTRODUCTION According to the life-cycle theory, consumption as a fraction of income varies with age. Taking this argument one step further, a country’s savings rate depends on the age structure of its population. This direct link between demographics and savings, investment, and capital flows has been addressed in a number of papers. Fair and Dominguez (1991) find mixed evidence for this story using quarterly U.S. data, whereas Higgins and Williamson (1997), Higgins (1998), and Lane and Milesi-Ferretti (2001) find strong support for the story using lower-frequency data for a large number of countries. In this article, we use another approach to examine the same link from demographics to savings, investment, and international capital flows. Rather than directly testing for correlations between a country’s age structure and these macroeconomic variables, we use a standard neoclassical model that is consistent with the life-cycle theory. We calibrate this model with population data and projections for a large number of countries, and examine if the data generated by the model can explain real-world capital flows. In addition to controlling for the domestic age structure, this approach allows us to control for a changing demographic structure in the world economy. In the coming decades, most developed countries will face aging populations and smaller fractions of prime-age workers in the population. Theory and the empirical results found by, for example, Higgins (1998) then predict that current account balances will fall. It is not possible, however, that all countries simultaneously run current

/pdf/population-aging-and-international-capital-flows-3detaqujs5.pdf

Population aging and international capital flows

https://martinfloden.net/files/Floden%20M%20-%20EL%202008.pdf

Martin Flodén

Papers

The labor-supply elasticity and borrowing constraints: Why estimates are biased

Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?

The effectiveness of government debt and transfers as insurance

Population aging and international capital flows

A note on the accuracy of Markov-chain approximations to highly persistent AR(1) processes