Population, Pensions and Endogenous Economic Growth

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Population, Pensions and Endogenous Economic Growth

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Heer, Burkhard
Irmen, Andreas

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Abstract

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7172.

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Date of creation: Feb 2009
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Handle: RePEc:cpr:ceprdp:7172

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Paper
- Burkhard Heer & Andreas Irmen, 2008. "Population, Pensions, and Endogenous Economic Growth," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Burkhard Heer & Andreas Irmen, 2008. "Population, Pensions, and Endogenous Economic Growth," Working Papers 0479, University of Heidelberg, Department of Economics, revised Nov 2008. [Downloadable!]

Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

This paper has been announced in the following NEP Reports:

NEP-AGE-2009-02-28 (Economics of Ageing)
NEP-ALL-2009-02-28 (All new papers)
NEP-DEV-2009-02-28 (Development)
NEP-DGE-2009-02-28 (Dynamic General Equilibrium)
NEP-FDG-2009-02-28 (Financial Development & Growth)

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