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The macroeconomic dynamics of demographic shocks

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Author Info
Heijdra, B.J.
Ligthart, J.E. (Tilburg University, Center for Economic Research)

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Abstract

The paper employs an extended Yaari-Blanchard model of overlapping generations to study how the macroeconomy is a.ected 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, while 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 e.ect. 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 which leaves una.ected 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 consumption rises.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 90.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:200490

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Find related papers by JEL classification:
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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  1. 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. [Downloadable!] (restricted)
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  2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467. [Downloadable!] (restricted)
  3. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April. [Downloadable!] (restricted)
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  4. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 57-74, Summer. [Downloadable!] (restricted)
  5. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers 553, Massachusetts Institute of Technology (MIT), Department of Economics.
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  6. Momota, Akira & Futagami, Koichi, 2000. "Demographic transition pattern in a small country," Economics Letters, Elsevier, vol. 67(2), pages 231-237, May. [Downloadable!] (restricted)
  7. Judd, Kenneth L., 1982. "An alternative to steady-state comparisons in perfect foresight models," Economics Letters, Elsevier, vol. 10(1-2), pages 55-59. [Downloadable!] (restricted)
  8. Bovenberg, A.L., 1992. "Investment-Promoting Policies in Open Economies: The Importance of Intergenerational and International Distributional Effects," Papers 9220, Tilburg - Center for Economic Research.
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  9. Heijdra, Ben J & Ligthart, Jenny E, 2000. "The Dynamic Macroeconomic Effects of Tax Policy in an Overlapping Generations Model," Oxford Economic Papers, Oxford University Press, vol. 52(4), pages 677-701, October.
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  10. José-Víctor Ríos-Rull, 2001. "Population Changes and Capital Accumulation: The Aging of the Baby Boom," Advances in Macroeconomics, Berkeley Electronic Press, vol. 1(advances/), pages 1008-1008. [Downloadable!] (restricted)
  11. Ben J. Heijdra & Jenny E. Ligthart, 2002. "Tax Policy, the Macroeconomy, and Intergenerational Distribution," IMF Staff Papers, Palgrave Macmillan Journals, vol. 49(1), pages 6. [Downloadable!] (restricted)
  12. repec:fth:harver:1490 is not listed on IDEAS
  13. 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. [Downloadable!] (restricted)
  14. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June. [Downloadable!] (restricted)
  15. David E. Bloom & David Canning & Bryan Graham, 2003. "Longevity and Life-cycle Savings," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(3), pages 319-338, 09. [Downloadable!] (restricted)
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  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 Economics Department. [Downloadable!]
  17. Robin Brooks, 2002. "Asset-Market Effects of the Baby Boom and Social-Security Reform," American Economic Review, American Economic Association, vol. 92(2), pages 402-406, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2004. "Fertility, Mortality, and the Developed World’s Demographic Transition," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  2. Fisher, Walter H. & Heijdra, Ben J., 2007. "Keeping up with the Ageing Joneses," Economics Series 204, Institute for Advanced Studies. [Downloadable!]
  3. Christiane Nickel & Philipp Rother & Angeliki Theophilopoulou, 2008. "Population ageing and public pension reforms in a small open economy," Working Paper Series 863, European Central Bank. [Downloadable!]
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