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The Macroeconomic Dynamics Of Demographic Shocks

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  • HEIJDRA, BEN J.
  • LIGTHART, JENNY E.

Abstract

The paper employs an extended Yaari-Blanchard model of overlapping generations to study how the macroeconomy is affected over time by various demographic changes. It is shown that a proportional decline in fertility and death rates has qualitatively similar effects to capital income subsidies; both per capita savings and per capita consumption increase in the new steady state. A drop in the birth rate, although keeping the death rate constant, reduces per capita savings, but increases per capita consumption if the generational turnover effect is dominated by the intertemporal labor supply effect. If the generational turnover effect is sufficiently strong, however, a decline in the birth rate may, contrary to standard results, give rise to an increase in per capita savings. Finally, a fertility rate reduction that leaves unaffected the rate of generational turnover is shown to have effects qualitatively similar to those of a fall in public consumption. Both per capita savings and per capita output decline, but per capita private consumption rises.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 10 (2006)
Issue (Month): 03 (June)
Pages: 349-370

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Handle: RePEc:cup:macdyn:v:10:y:2006:i:03:p:349-370_05

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References

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  1. Ligthart, J.E. & Heijdra, B.J., 2000. "The dynamic macroeconomic effects of tax policy in an overlapping generations model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-141315, Tilburg University.
  2. Alan J. Auerbach & Laurence J. Kotlikoff & Robert Hagemann & Giuseppe Nicoletti, 1989. "The Dynamics of an Aging Population: The Case of Four OECD Countries," NBER Working Papers 2797, National Bureau of Economic Research, Inc.
  3. 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.
  4. Gary S. Becker & Robert J. Barro, 1988. "A Reformulation of the Economic Theory of Fertility," NBER Working Papers 1793, National Bureau of Economic Research, Inc.
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  8. Heijdra, Ben J. & Ligthart, Jenny E., 2004. "The macroeconomic dynamics of demographic shocks," CCSO Working Papers 200403, University of Groningen, CCSO Centre for Economic Research.
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  15. Bovenberg, A. Lans & Heijdra, Ben J., 1998. "Environmental tax policy and intergenerational distribution," Journal of Public Economics, Elsevier, vol. 67(1), pages 1-24, January.
  16. Ríos-Rull José-Víctor, 2001. "Population Changes and Capital Accumulation: The Aging of the Baby Boom," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-48, May.
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Citations

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Cited by:
  1. Fisher, Walter H. & Heijdra, Ben J., 2007. "Keeping up with the Ageing Joneses," Economics Series 204, Institute for Advanced Studies.
  2. Heijdra, B.J. & Ligthart, J.E., 2004. "The Macroeconomic Dynamics of Demographic Shocks," Discussion Paper 2004-90, Tilburg University, Center for Economic Research.
  3. Klaus Prettner & David Canning, 2012. "Increasing life expectancy and optimal retirement:does population aging necessarily undermine economic prosperity?," PGDA Working Papers 9112, Program on the Global Demography of Aging.
  4. Walter H. Fisher & Ben J. Heijdra, 2008. "Growth and the Ageing Joneses," CESifo Working Paper Series 2466, CESifo Group Munich.
  5. Klaus Prettner, 2013. "Population aging and endogenous economic growth," Journal of Population Economics, Springer, vol. 26(2), pages 811-834, April.
  6. Nickel, Christiane & Rother, Philipp & Theophilopoulou, Angeliki, 2008. "Population ageing and public pension reforms in a small open economy," Working Paper Series 0863, European Central Bank.
  7. Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2004. "Fertility, Mortality, and the Developed World’s Demographic Transition," CESifo Working Paper Series 1326, CESifo Group Munich.
  8. Fernando Perera-Tallo, 2012. "Optimal Retirement Age and Aging Population," 2012 Meeting Papers 728, Society for Economic Dynamics.
  9. Fedotenkov, I., 2012. "Pensions and ageing in a globalizing world. International spillover effects via trade and factor mobility," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5590843, Tilburg University.
  10. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer, vol. 37(3), pages 375-401, July.
  11. Prettner, Klaus & Strulik, Holger, 2013. "Trade and productivity: The family connection redux," Center for European, Governance and Economic Development Research Discussion Papers 159, University of Goettingen, Department of Economics.

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