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How should the allocation of resources adjust to the baby bust?

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  • DE LA CROIX, David
  • MAHIEU, Géraldine
  • RILLAERS, Alexandra

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.

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File URL: http://dx.doi.org/10.1111/j.1467-9779.2004.00183.x
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1741.

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Handle: RePEc:cor:louvrp:-1741

Note: In : Journal of Public Economic Theory, 6(4), 607-636, 2004
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  1. Meijdam, L. & Verbon, H.A.A., 1995. "Aging and public pensions in an overlapping-generations model," Discussion Paper 1995-38, Tilburg University, Center for Economic Research.
  2. Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer, vol. 15(4), pages 737-755.
  3. Blanchet, Didier & Kessler, Denis, 1991. "Optimal Pension Funding with Demographic Instability and Endogenous Returns on Investment," Journal of Population Economics, Springer, vol. 4(2), pages 137-54, May.
  4. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers 1762, C.E.P.R. Discussion Papers.
  5. Marchand, M. & Michel, P. & Pestieau, P., . "Intergenerational transfers in an endogenous growth model with fertility changes," CORE Discussion Papers RP -1229, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Laurence J. Kotlikoff, 1998. "Simulating the Privatization of Social Security in General Equilibrium," NBER Chapters, in: Privatizing Social Security, pages 265-311 National Bureau of Economic Research, Inc.
  7. repec:fth:harver:1490 is not listed on IDEAS
  8. Michel, Philippe, 1990. "Some Clarifications on the Transversality Condition," Econometrica, Econometric Society, vol. 58(3), pages 705-23, May.
  9. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
  10. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-49, September.
  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. 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.
  13. 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, vol. 17(2), pages 510-15, June.
  14. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-83, June.
  15. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, . "Pay-as-you go social security in a changing environment," CORE Discussion Papers RP -961, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. 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.
  17. Peters, Wolfgang, 1991. "Public Pensions in Transition: An Optimal Policy Path," Journal of Population Economics, Springer, vol. 4(2), pages 155-75, May.
  18. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 7-44, January.
  19. repec:cup:macdyn:v:1:y:1997:i:1:p:7-44 is not listed on IDEAS
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Citations

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Cited by:
  1. Alessandro, SOMMACAL, 2004. "Pension systems and intragenerational redistribution when labor supply is endogenous," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. David Croix & Pierre Pestieau & Grégory Ponthière, 2012. "How powerful is demography? The Serendipity Theorem revisited," Journal of Population Economics, Springer, vol. 25(3), pages 899-922, July.
  3. 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.
  4. David de la Croix & Olivier Pierrard & Henri R. Sneessens, 2010. "Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter," CREA Discussion Paper Series 10-09, Center for Research in Economic Analysis, University of Luxembourg.
  5. 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 13-6, Galatasaray University Economic Research Center.
  6. Pierre Pestieau & Grégory Ponthière, 2011. "Optimal Fertility along the Lifecycle," PSE Working Papers hal-00612609, HAL.
  7. repec:hal:wpaper:hal-00612609 is not listed on IDEAS
  8. Jorgensen, Ole Hagen, 2011. "Macroeconomic and policy implications of population aging in Brazil," Policy Research Working Paper Series 5519, The World Bank.
  9. 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.
  10. 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.
  11. Andersen, Torben M, 2008. "Fiscal Sustainability and Demographics - Should We Save or Work More?," CEPR Discussion Papers 7044, C.E.P.R. Discussion Papers.
  12. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 264-280.

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