The effects of aging population on the sustainability of fiscal policy
AbstractWe study the effects of aging population on the sustainability of fiscal policy in overlapping generations models with government debt and a pay-as-you-go pension system. The smaller the population growth rate, the lower the maximum sustainable level of deficits. When the utility function is of a specific form, an increase in the payroll tax rate and the replacement rate decreases the level of maximum sustainable deficits; except in the case when pension depends on the wage level prevailing during the working period. The ratio of the deficits in two economies with different population growth rates is characterized with numerical examples.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 26/2005.
Length: 32 pages
Date of creation: 11 Oct 2005
Date of revision:
aging; pensions; overlapping generations; fiscal policy;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-21 (All new papers)
- NEP-DGE-2006-10-21 (Dynamic General Equilibrium)
- NEP-MAC-2006-10-21 (Macroeconomics)
- NEP-PBE-2006-10-21 (Public Economics)
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