Aging and Deflation from a Fiscal Perspective
AbstractNegative correlations between inflation and demographic aging have been observed across developed nations recently. To understand the phenomenon from a political economy perspective, we embed the fiscal theory of the price level into an overlapping-generations model. We suppose that short-lived governments successively choose income tax rates and bond issues, considering political influence from existing generations and the expected policy responses of future governments. Our analysis reveals that the effects of aging depend on its causes; aging is deflationary when caused by an unexpected increase in longevity, but is inflationary when caused by a decline in the birth rate. Our analysis also sheds new light on the traditional debate about the burden of national debt. Because of price adjustment, the accumulation of government debt imposes no burden on future generations.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 13-E-13.
Date of creation: Dec 2013
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Deflation; Fiscal theory of the price level; Population aging; Redistribution across;
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- 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; Treasury Policy
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-AGE-2014-01-10 (Economics of Ageing)
- NEP-ALL-2014-01-10 (All new papers)
- NEP-DGE-2014-01-10 (Dynamic General Equilibrium)
- NEP-MAC-2014-01-10 (Macroeconomics)
- NEP-PBE-2014-01-10 (Public Economics)
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