The Life Cycle Hypothesis and Uncertainty: Analyzing Aging Savings Relationship in Tunisia

Abstract

This research empirically checks the effect of uncertainty on aging-saving link that is indirectly captured by an auxiliary variable: the unemployment. It looks at the nexus population aging and savings by bringing out the unemployment context importance in determination saving behavior notably in a setting of unavailability of unemployment allowance. To better estimate population aging, it considers the old-age dependency ratio besides the total dependency one, which is the usually indicator used. Applying the Structural VAR model, the variance decomposition technique and the response impulse function, on Tunisia during 1970–2019, it puts on show that elderly do not dissave in a context of enduring unemployment and unavailability of unemployment allowance. Unemployment is an important factor able to shaping the saving behavior and to distort the life cycle hypothesis’s prediction. Consequently, the life cycle hypothesis cannot be validated under uncertainty. Hence, aging does not to alter savings systematically. The nature of aging-saving relationship is upon to social and economic context.