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How Should The Allocation Of Resources Adjust To The Baby Bust?

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Author Info

  • Alexandra Rillaers

    ()
    (Universidad de Alicante)

  • David de la Croix

    (Université Catholique de Louvain)

  • Geraldine Mahieu

    (National Bank of Belgium)

Abstract

We analyze the impact of a drop in fertility on the optimal allocation of resources in an overlapping generations economy where old workers care about leisure. We also characterize optimal dynamics and study the decentralization of the optimum by means of inter-generational transfers and/or public debt. We conclude that the policy recommendations of postponing retirement is fragile and depend on preferences and technologies. Also, even when the optimal adjustment of public debt goes into the expected direction in the long run, -i.e. public debt should decrease,- this may not be the case during the transition.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2003-27.pdf
File Function: Fisrt version / Primera version, 2003
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-27.

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Length: 38 pages
Date of creation: Aug 2003
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-27

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Keywords: Demographic shock; retirement age; public debt;

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References

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  1. Laurence J. Kotlikoff, 1998. "Simulating the Privatization of Social Security in General Equilibrium," NBER Chapters, in: Privatizing Social Security, pages 265-311 National Bureau of Economic Research, Inc.
  2. Philippe Michel & Pierre Pestieau, 2013. "Social Security And Early Retirement In An Overlapping-Generations Growth Model," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 723-737, November.
  3. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Pay-as-You-Go Social Security in a Changing Environment," Journal of Population Economics, Springer, vol. 4(4), pages 257-80, November.
  4. Meijdam, Lex & Verbon, Harrie A A, 1997. "Aging and Public Pensions in an Overlapping-Generations Model," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 29-42, January.
  5. Miles, David, 1999. "Modelling the Impact of Demographic Change upon the Economy," Economic Journal, Royal Economic Society, vol. 109(452), pages 1-36, January.
  6. Deardorff, Alan V, 1976. "The Optimum Growth Rate for Population: Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 510-15, June.
  7. Peters, Wolfgang, 1991. "Public Pensions in Transition: An Optimal Policy Path," Journal of Population Economics, Springer, vol. 4(2), pages 155-75, May.
  8. Marchand, M. & Michel, P. & Pestieau, P., . "Intergenerational transfers in an endogenous growth model with fertility changes," CORE Discussion Papers RP -1229, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
  10. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
  11. Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer, vol. 15(4), pages 737-755.
  12. repec:fth:harver:1490 is not listed on IDEAS
  13. Blanchet, Didier & Kessler, Denis, 1991. "Optimal Pension Funding with Demographic Instability and Endogenous Returns on Investment," Journal of Population Economics, Springer, vol. 4(2), pages 137-54, May.
  14. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-83, June.
  15. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 7-44, January.
  16. repec:cup:macdyn:v:1:y:1997:i:1:p:7-44 is not listed on IDEAS
  17. Michel, Philippe, 1990. "Some Clarifications on the Transversality Condition," Econometrica, Econometric Society, vol. 58(3), pages 705-23, May.
  18. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-49, September.
  19. 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 Publishing.
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Citations

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Cited by:
  1. de la Croix, David & Pierrard, Olivier & Sneessens, Henri R., 2013. "Aging and pensions in general equilibrium: Labor market imperfections matter," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 104-124.
  2. Alessandro Sommacal, 2006. "Pension systems and intragenenerational redistribution when labor supply is endogenous," Oxford Economic Papers, Oxford University Press, vol. 58(3), pages 379-406, July.
  3. David De La Croix & Pierre Pestieau & Grégory Ponthière, 2009. "How Powerful is Demography? The Serendipity Theorem Revisited," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00575095, HAL.
  4. PESTIEAU, Pierre & PONTHIERE, Grégory, 2011. "Optimal fertility along the lifecycle," CORE Discussion Papers 2011033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Jorgensen, Ole Hagen, 2011. "Macroeconomic and policy implications of population aging in Brazil," Policy Research Working Paper Series 5519, The World Bank.
  6. Batyra, Anna & de la Croix, David & Pierrard, Olivier & Sneessens, Henri R., 2013. "Declining bargaining power of workers and the rise of early retirement in Europe," GIAM Working Papers 13-6, Galatasaray University Economic Research Center.
  7. Jensen, Svend E. Hougaard & Jorgensen, Ole Hagen, 2010. "Reform and backlash to reform : economic effects of ageing and retirement policy," Policy Research Working Paper Series 5470, The World Bank.
  8. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 264-280.
  9. Jørgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2009. "Labour supply and retirement policy in an overlapping generations model with stochastic fertility," Discussion Papers of Business and Economics 1/2009, Department of Business and Economics, University of Southern Denmark.
  10. Jorgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2010. "Labor supply and retirement policy in an overlapping generations model with stochastic fertility," Policy Research Working Paper Series 5382, The World Bank.
  11. repec:hal:wpaper:hal-00612609 is not listed on IDEAS
  12. Andersen, Torben M, 2008. "Fiscal Sustainability and Demographics - Should We Save or Work More?," CEPR Discussion Papers 7044, C.E.P.R. Discussion Papers.

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