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How Should the Allocation of Resources Adjust to the Baby Bust?

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  • David De La Croix
  • Géraldine Mahieu
  • Alexandra Rillaers

Abstract

We analyze the impact of a drop in fertility on the optimal allocation of resources in an overlapping generations economy where old workers care about leisure. We also characterize optimal dynamics and study the decentralization of the optimum by means of inter-generational transfers and/or public debt. We conclude that the policy recommendations of postponing retirement is fragile and depend on preferences and technologies. Also, even when the optimal adjustment of public debt goes into the expected direction in the long run-i.e., public debt should decrease-this may not be the case during the transition. Copyright 2004 Blackwell Publishing Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 6 (2004)
Issue (Month): 4 (October)
Pages: 607-636

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Handle: RePEc:bla:jpbect:v:6:y:2004:i:4:p:607-636

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References

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  1. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1762, C.E.P.R. Discussion Papers.
  2. Meijdam, L. & Verbon, H.A.A., 1995. "Aging and public pensions in an overlapping-generations model," Discussion Paper, Tilburg University, Center for Economic Research 1995-38, Tilburg University, Center for Economic Research.
  3. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Pay-as-You-Go Social Security in a Changing Environment," Journal of Population Economics, Springer, Springer, vol. 4(4), pages 257-80, November.
  4. Laurence J. Kotlikoff, 1996. "Simulating the Privatization of Social Security in General Equilibrium," NBER Working Papers 5776, National Bureau of Economic Research, Inc.
  5. Michel, Philippe, 1990. "Some Clarifications on the Transversality Condition," Econometrica, Econometric Society, Econometric Society, vol. 58(3), pages 705-23, May.
  6. Blanchet, Didier & Kessler, Denis, 1991. "Optimal Pension Funding with Demographic Instability and Endogenous Returns on Investment," Journal of Population Economics, Springer, Springer, vol. 4(2), pages 137-54, May.
  7. Deardorff, Alan V, 1976. "The Optimum Growth Rate for Population: Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 510-15, June.
  8. Marchand, Maurice & Michel, Philippe & Pestieau, Pierre, 1996. "Intergenerational transfers in an endogenous growth model with fertility changes," European Journal of Political Economy, Elsevier, Elsevier, vol. 12(1), pages 33-48, April.
  9. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  10. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 553, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Philippe Michel & Pierre Pestieau, 2013. "Social Security And Early Retirement In An Overlapping-Generations Growth Model," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 723-737, November.
  12. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 1(01), pages 7-44, January.
  13. repec:cup:macdyn:v:1:y:1997:i:1:p:7-44 is not listed on IDEAS
  14. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 90(359), pages 529-49, September.
  15. Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer, Springer, vol. 15(4), pages 737-755.
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  17. Alan J. Auerbach & Laurence J. Kotlikoff & Robert P. Hagemann & Giuseppe Nicoletti, 1989. "The Economic Dynamics of an Ageing Population: The Case of Four OECD Countries," OECD Economics Department Working Papers 62, OECD Publishing.
  18. Peters, Wolfgang, 1991. "Public Pensions in Transition: An Optimal Policy Path," Journal of Population Economics, Springer, Springer, vol. 4(2), pages 155-75, May.
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Citations

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Cited by:
  1. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(2), pages 264-280.
  2. Jorgensen, Ole Hagen, 2011. "Macroeconomic and policy implications of population aging in Brazil," Policy Research Working Paper Series 5519, The World Bank.
  3. David de la CROIX & Pierre PESTIEAU & Gregory PONTHIERE, 2009. "How Powerful is Demography? The Serendipity Theorem Revisited," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2009040, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  4. Batyra, Anna & de la Croix, David & Pierrard, Olivier & Sneessens, Henri R., 2013. "Declining bargaining power of workers and the rise of early retirement in Europe," GIAM Working Papers, Galatasaray University Economic Research Center 13-6, Galatasaray University Economic Research Center.
  5. repec:hal:wpaper:hal-00612609 is not listed on IDEAS
  6. David de la Croix & Olivier Pierrard & Henri R. Sneessens, 2011. "Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter," BCL working papers, Central Bank of Luxembourg 62, Central Bank of Luxembourg.
  7. Alessandro, SOMMACAL, 2004. "Pension systems and intragenerational redistribution when labor supply is endogenous," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2004008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  8. Jensen, Svend E. Hougaard & Jorgensen, Ole Hagen, 2010. "Reform and backlash to reform : economic effects of ageing and retirement policy," Policy Research Working Paper Series 5470, The World Bank.
  9. PESTIEAU, Pierre & PONTHIERE, Grégory, 2011. "Optimal fertility along the lifecycle," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2011033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Jorgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2010. "Labor supply and retirement policy in an overlapping generations model with stochastic fertility," Policy Research Working Paper Series 5382, The World Bank.
  11. Jørgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2009. "Labour supply and retirement policy in an overlapping generations model with stochastic fertility," Discussion Papers of Business and Economics 1/2009, Department of Business and Economics, University of Southern Denmark.
  12. Andersen, Torben M, 2008. "Fiscal Sustainability and Demographics - Should We Save or Work More?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7044, C.E.P.R. Discussion Papers.

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