comparable across the two POF surveys, a general tendency in the direction of higher saving across all age-groups will also increase the average saving rate.

If saving rates increase the most for older age-groups, the weighted average of the saving rate is likely to increase substantially since the elderly will constitute a larger share of the population and, thus, be assigned a larger weight in the average saving rate. If the saving rate mainly increases for younger age-groups, there may not be a marked difference in the average saving rate. In conclusion, more research is needed in this area in order to determine the likely implications for saving of changes in age-structures and poverty. However, the main finding from the partial equilibrium analysis is that the saving rate is likely to increase in the future — especially if poverty falls. This, the topic of the next section, depends crucially on whether there will be endogenous changes in agespecific saving rates.

# **4. Aging, Wealth, and Demographic Dividends**

This section provides a general equilibrium (general equilibrium) analysis of the policy challenges and tradeoffs the Brazilian government faces in the context of aging. This analysis complements the partial equilibrium analysis described in the previous section. The partial equilibrium model does not allow households to change their saving behavior as a response to neither aging nor the economic implications aging may have. Instead, households are assumed to display the same economic behavior in the future as they did when the POF household surveys were conducted in 2002 an 2008, respectively.

However, aging is likely to have major general equilibrium implications for household behavior in terms of, for example, consumption, saving, human capital investments, and labor supply. Moreover, macroeconomic responses to aging that endogenously affects growth — such as reductions in the availability of labor in production — were also not taken into account by the partial equilibrium model.

The general equilibrium model captures these behavioral and macroeconomic responses to aging. A general equilibrium model has its own advantages and disadvantages compared to the partial equilibrium model since, in a general equilibrium model, the demographic changes are usually more broadly defined compared to the detailed accounting in a cohort-component demographic model used in the partial equilibrium analysis, and market structures are usually quite crudely defined compared to reality.<sup>7</sup> In order to capture these behavioral and macroeconomic responses to aging it is therefore necessary to complement the findings from the partial equilibrium analysis with an analysis of aging within a demographic-economic general equilibrium framework. A general equilibrium model has its own advantages and disadvantages compared to the partial equilibrium model since, in a general equilibrium model, the demographic changes are usually more broadly defined compared to the

> 7 In terms of the political economy implications of aging, reduced-form relationships will not be stable over time in the face of policy interventions. This is also a version of the Lucas critique (Lucas, 1976) indicating that policy interventions in the future by the Brazilian government may change parameters in the general equilibrium model presented in this section — and this is a general caveat of employing calibrated economic models for evaluating possible policy options (Acemoglu, 2010).

15