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Macroeconomic Implications of Population Aging and Public Pensions

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Author Info
Malick Souare
Abstract

We develop a calibrated general equilibrium model of a small open economy to examine some macroeconomic and distributional effects of an aging population. The model features overlapping generations with a public pension system, asymmetric information in the labor market, and includes some households that are liquidity constrained. Our main results are as follows. First, by analyzing the consequences of population aging in one country without taking into account the extent of aging throughout the world, one may systematically misestimate the effect which aging may have on that country's living standards and its net foreign asset position. Second, the magnitude of the effect of an aging population on people's average living standards, both in the short run and in the long run, significantly depends on whether or not they are liquidity constrained. Third, whether increases in contribution rates to finance the public pension system (as the elderly dependency ratio rises) are imposed on workers or firms has little effect on the impact of aging on living standards; however, it does matter for the unemployment rate.

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Paper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 100.

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Length: 67 pages
Date of creation: May 2003
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Handle: RePEc:mcm:sedapp:100

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Keywords: population aging; general equilibrium model; public pension;

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E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. William Scarth, 2007. "A Note on Income Distribution and Growth," Quantitative Studies in Economics and Population Research Reports 421, McMaster University. [Downloadable!]
  2. William Scarth, 2007. "A Note on Income Distribution and Growth," Social and Economic Dimensions of an Aging Population Research Papers 213, McMaster University. [Downloadable!]
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