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Ageing, Government Budgets, Retirement, and Growth

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  • Martín Gonzalez-Eiras
  • Dirk Niepelt

Abstract

We analyze the short and long run effects of demographic ageing—increased longevity and reduced fertility—on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict taxation and the retirement age in OECD economies to increase in response to demographic ageing and per-capita growth to accelerate. If the retirement age were held constant, the growth rate in politico-economic equilibrium would essentially remain unchanged, due to a surge of social security transfers and crowding out of public investment.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3352.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3352

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Keywords: ageing; government budgets; retirement; growth;

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Cited by:
  1. Ryo Arawatari & Tetsuo Ono, 2008. "A Political Economy Model of Earnings Mobility and Redistribution Policy," Discussion Papers in Economics and Business 08-18-Rev.4, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Oct 2012.
  2. Tetsuo Ono, 2013. "Public Education and Social Security: A Political Economy Approach," Discussion Papers in Economics and Business 13-06, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Tetsuo Ono, 2013. "Public Education and Social Security: A Political Economy Approach," Discussion Papers in Economics and Business 13-06-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Sep 2013.
  4. Kunze, Lars, 2014. "Life expectancy and economic growth," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 54-65.
  5. Renuga Nagarajan & Aurora A.C. Teixeira & Sandra T. Silva, 2013. "The impact of an ageing population on economic growth: an exploratory review of the main mechanisms," FEP Working Papers 504, Universidade do Porto, Faculdade de Economia do Porto.
  6. Seok Gil Park, 2012. "Quantifying Impact of Aging Population on Fiscal Space," IMF Working Papers 12/164, International Monetary Fund.
  7. Francesco Lancia & Alessia Russo, 2013. "A Dynamic Politico-Economic Model of Intergenerational contracts," Vienna Economics Papers, University of Vienna, Department of Economics 1304, University of Vienna, Department of Economics.
  8. Schimke, Antje, 2014. "Aging workforce and firm growth in the context of "extreme" employment growth events," Working Paper Series in Economics 54, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
  9. Tetsuo Ono, 2014. "Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis," Discussion Papers in Economics and Business 14-30, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  10. Bishnu, Monisankar & Wang, Min, 2014. "The Political Intergenerational Welfare State," Staff General Research Papers 37764, Iowa State University, Department of Economics.
  11. Lars Kunze, 2014. "Mandatory retirement and economic growth: An inverted U-shaped relationship," Economics Bulletin, AccessEcon, vol. 34(2), pages 885-891.
  12. Luciano Fanti & Luca Gori, 2012. "Public Expenditure on Health and Private Old-Age Insurance in an OLG Growth Model with Endogenous Fertility: Chaotic Dynamics Under Perfect Foresight," Computational Economics, Society for Computational Economics, vol. 40(4), pages 333-353, December.
  13. Renuga Nagarajan & Aurora A.C. Teixeira & Sandra T. Silva, 2013. "The impact of population ageing on economic growth: an in-depth bibliometric analysis," FEP Working Papers 505, Universidade do Porto, Faculdade de Economia do Porto.
  14. Ryo Arawatari & Tetsuo Ono, 2011. "A Political Economy Theory of Government Debt and Social Security," Discussion Papers in Economics and Business 11-33, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  15. Schimke, Antje, 2012. "Entrepreneurial aging and employment growth in the context of extreme growth events," Working Paper Series in Economics 39, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
  16. Tetsuo Ono, 2013. "Public Education and Social Security: A Political Economy Approach," Discussion Papers in Economics and Business 13-06-Rev.2, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Sep 2014.
  17. Tetsuo Ono, 2014. "Economic Growth and the Politics of Intergenerational Redistribution," Discussion Papers in Economics and Business 14-17, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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