Dependency Rates and Private Savings Behavior in Developing Countries

Abstract

Empirical results establishing a firm empirical relationship between dependency rates and savings behavior in developing countries are still lacking. Two demographic extensions of the representative household's stochastic dynamic optimization problem are presented. The relationship between expected dependency rates and consumption growth is shown to depend on two parameters: demographically varying committed consumption and the intertemporal elasticity of substitution. Thus, the expected path of demographic variables can provide information on consumer willingness to smooth consumption, and on the savings responsiveness to changes in the real interest rate.