This paper analyses the impact of welfare systems and longevity on savings. It
develops a life-cycle model embodying social transfers (health care and pension
expenditures) and changes in longevity to determine the level of household savings.
We simulated an aggregate saving equation and derived a reduced-form model,
together with other factors such as public deficits and the population structure.
The model is estimated for a panel of 18 OECD countries. Our principal result is
that both pension and health transfers may have a significant negative impact on the household saving. Therefore these interactions should be taken account when
designing welfare reforms.
