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Baby-Boom Aging and Average Living Standards

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  • William Scarth
  • Marick Souare
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    Abstract

    A calibrated overlapping generations model is used to investigate the effect on living standards of the aging baby boom. The relative scarcity of labor when baby boomers are old raises the wage-rental ratio by an amount that is sufficient to ensure that the post baby-boom generation can enjoy a modest increase in living standards - despite facing higher taxes. Nevertheless, the baby-boom cohort itself suffers a drop in consumption, and when the two generations are considered as a group, overall living standards fall by a modest amount. These results are robust to several changes in specification: the existence of liquidity constraints, alternative assumptions regarding individuals' expectations concerning future interest rates, and different fiscal policies concerning the tax treatment of private saving for retirement. Policy initiatives that bring significant hardship today to avoid a future "crisis" are not supported by the standard overlapping generations model.

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    File URL: http://socserv.mcmaster.ca/qsep/p/qsep368.pdf
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    Bibliographic Info

    Paper provided by McMaster University in its series Quantitative Studies in Economics and Population Research Reports with number 368.

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    Length: 28 pages
    Date of creation: Feb 2002
    Date of revision:
    Handle: RePEc:mcm:qseprr:368

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    Keywords: over-lapping generations model; living standards; baby-boom; aging;

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    1. Alwyn Young, 2001. "Demographic Fluctuations, Generational Welfare and Intergenerational Transfers," NBER Working Papers 8530, National Bureau of Economic Research, Inc.
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