Increasing life expectancy and optimal retirement:does population aging necessarily undermine economic prosperity?
AbstractIn this paper we analyze the e ects of changes in longevity and the pace of technological progress on interest rates, savings behaviour and optimal retirement decisions. In so doing we embed the dynamic optimization problem of choosing a life-cycle consumption path and the retirement age into a general equilibrium setting. Thereby we assume that technology evolves exogenously and the production side of the economy can be described by means of a neoclassical production function. Our results show that (i) the aggregate capital to consumption ratio increases and interest rates decrease in response to increases in longevity; (ii) the response of the optimal retirement age to increases in longevity is ambiguous. However, for reasonable parameter values the optimal retirement age increases in longevity; (iii) the aggregate capital to consumption ratio decreases and interest rates increase in response to faster technological progress; (iv) the response of the optimal retirement age to faster technological progress is ambiguous. However, for reasonable parameter values the optimal retirement age increases in the pace of technological improvements.
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Bibliographic InfoPaper provided by Program on the Global Demography of Aging in its series PGDA Working Papers with number 9112.
Date of creation: Feb 2012
Date of revision:
endogenous retirement; life-cycle savings; population aging; technological progress; economic prosperity;
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-02-27 (Economics of Ageing)
- NEP-ALL-2012-02-27 (All new papers)
- NEP-DEM-2012-02-27 (Demographic Economics)
- NEP-DGE-2012-02-27 (Dynamic General Equilibrium)
- NEP-HEA-2012-02-27 (Health Economics)
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