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Worldwide Population Aging: Endogenous Policy Formation and Capital Market Transmissions in the Presence of Symmetric Demographic Shocks

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Author Info
Mehmet Serkan Tosun

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Abstract

This paper examines the transition effects of population aging in more developed regions that is also expected to occur in developing regions in the near future. We address these effects by exploring the influences of internationally mobile capital and a politically responsive fiscal policy in a two-country overlapping generations model. Our results show that the combination of capital mobility and endogenous fiscal policy play an important role in how economies respond to population aging. Capital mobility has consumption smoothing effects but endogenous fiscal policy is the key factor in creating asymmetries between countries. The interaction of the two may even account for a change in the pattern, in addition to a change in the size, of the effects of population aging on economic growth and welfare when compared to closed economy and exogenous fiscal policy models. We find that even when the demographic shock in the two regions is symmetric, reaction to this shock depends on the timing of the shock. Overall, the late, developing country demographic shock produces relatively more favorable economic outcomes worldwide. Finally, our analysis of the timing of developing country aging indicates that an early aging scenario is more beneficial for both regions.

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Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 27.

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Length: 43 pages
Date of creation: Jun 2000
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Handle: RePEc:max:cprwps:27

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Find related papers by JEL classification:
J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped
O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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  1. Dave Turner & Claude Giorno & Alain de Serres & Ann Vourc'h & Pete Richardson, 1998. "The Macroeconomic Implications of Ageing in a Global Context," OECD Economics Department Working Papers 193, OECD Economics Department. [Downloadable!]
  2. Lex Meijdam & Harrie A. A. Verbon, 1996. "Aging and political decision making on public pensions," Journal of Population Economics, Springer, vol. 9(2), pages 141-158.
  3. Paul R. Masson & Ralph W. Tryon, 1990. "Macroeconomic Effects Of Projected Population Aging In Industrial Countries," IMF Working Papers 90/5, International Monetary Fund.
  4. 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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  5. Meijdam, Lex & Verbon, Harrie A A, 1996. "Aging and Political Decision Making on Public Pensions," Journal of Population Economics, Springer, vol. 9(2), pages 141-58, May.
  6. Douglas Holtz-Eakin & Mary E. Lovely & Mehmet Serkan Tosun, 2000. "Generational Conflict, Human Capital Accumulation, and Economic Growth," Center for Policy Research Working Papers 28, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
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  7. James M. Poterba, 1996. "Demographic Structure and the Political Economy of Public Education," NBER Working Papers 5677, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. repec:fth:harver:1490 is not listed on IDEAS
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