Aging, labour market dynamics and fiscal imbalances
AbstractPopulation aging is a phenomenon common to all regions in the developed world, forcing most governments to implement structural reforms in order to avoid the development of fiscal imbalances. In Luxembourg, large inflows of – young – foreign workers generate an apparently sound public pension system, although no major structural reform has been implemented yet. In this paper, we study the interactions between demographic changes, labour market dynamics and public finance, by building an overlapping generations structure with New Open Macroeconomics and labour market frictions à la Diamond- Mortensen-Pissarides. We calibrate the model on Luxembourg data and we show that foreign labour inflows are a palliative but not a long term solution to the fiscal consequences of aging, and that only deep – and unpopular – fiscal reforms could solve the expected deficit problem. We also show that without foreign trade, foreign labour inflows would increase the domestic unemployment rate. This underlines the need to combine in a single framework the NOEM and the search and matching approaches.
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Bibliographic InfoPaper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 122.
Date of creation: 2012
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More information through EDIRC
Overlapping Generations; Aging; Fiscal Imbalances;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-10-27 (Economics of Ageing)
- NEP-ALL-2012-10-27 (All new papers)
- NEP-DEM-2012-10-27 (Demographic Economics)
- NEP-DGE-2012-10-27 (Dynamic General Equilibrium)
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.:
- Maurice Obstfeld and Kenneth Rogoff., 1995.
"Exchange Rate Dynamics Redux,"
Center for International and Development Economics Research (CIDER) Working Papers
C95-048, University of California at Berkeley.
- Pierrard, Olivier, 2008. "Commuters, residents and job competition," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 565-577, November.
- Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
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