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The Dynamics of an Aging Population: The Case of Four OECD Countries

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  • Alan J. Auerbach
  • Laurence J. Kotlikoff
  • Robert Hagemann
  • Giuseppe Nicoletti

Abstract

Demographic changes, such as those anticipated in most OECD countries, have many economics effects that impinge on a country's fiscal viability. Evaluation of the effects of associated changes in capital-labor ratios and the welfare and behavior of different generations requires the use of a dynamic general equilibrium model. The 75 generations - 250 year demographic simulation model, presented in Auerbach and Kotlikoff (1987, Chapter 11), has been modified to incorporate bequest behavior, technological change, the possibility that the economy is open to international trade, and government consumption expenditures that depend on the age composition of the population. The model has been further adapted to study the effects of impending demographic changes in Japan, the Federal Republic of Germany, Sweden and the United States. The simulation results indicate that these changes will have a major impact on rates of national saving, real wage rate and current accounts. One of this paper's fundamental lessons is that allowing for general equilibrium adjustments reduces the adverse welfare effects of increasing dependency ratios. Nevertheless, the welfare costs, and particularly their distributions across cohorts, pose serious challenges for policy makers in some cases.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2797.

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Date of creation: Feb 1989
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Publication status: published as OECD Economic Studies, No. 12, pp. 97-130, (Spring 1989).
Handle: RePEc:nbr:nberwo:2797

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  1. Laitner, John, 1990. "Tax Changes and Phase Diagrams for an Overlapping Generations Model," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 193-220, February.
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Cited by:
  1. Heijdra, Ben J. & Ligthart, Jenny E., 2006. "The Macroeconomic Dynamics Of Demographic Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 10(03), pages 349-370, June.
  2. Dekle, Robert, 2004. "Financing consumption in an aging Japan: The role of foreign capital inflows and immigration," Journal of the Japanese and International Economies, Elsevier, vol. 18(4), pages 506-527, December.
  3. John K. Hill, 1990. "Demographics and the foreign indebtedness of the United States," Research Paper 9002, Federal Reserve Bank of Dallas.
  4. Alan J. Auerbach & Laurence J. Kotlikoff, 1990. "Demographics, Fiscal Policy, and U.S. Saving in the 1980s and Beyond," NBER Chapters, in: Tax Policy and the Economy: Volume 4, pages 73-102 National Bureau of Economic Research, Inc.
  5. Serdar Sayan & Turalay Kenc, 1998. "Transmission of Demographic Shock Effects from Large to Small Countries : An Overlapping Generations CGE Analysis," Departmental Working Papers 985, Bilkent University, Department of Economics.
  6. Serdar Sayan, 2002. "Dynamic Heckscher-Ohlin Results from a 2x2x2x2 Overlapping Generations Model with Unequal Population Growth Rates," Departmental Working Papers 0201, Bilkent University, Department of Economics.
  7. S. Nuray Akin, 2007. "Population Aging, Social Security, and the New Immigration Policy in Germany," Working Papers 0717, University of Miami, Department of Economics.
  8. Rebelein, Robert P., 2005. "Intergenerational Strategic Behavior and Crowding Out in a General Equilibrium Model," Vassar College Department of Economics Working Paper Series 74, Vassar College Department of Economics.
  9. Fortin, Pierre, 1989. "L’impact du choc démographique sur le niveau de vie à long terme," L'Actualité Economique, Société Canadienne de Science Economique, vol. 65(3), pages 364-395, septembre.
  10. Sabine Jokisch & Laurence J. Kotlikoff, 2005. "Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax," NBER Working Papers 11858, National Bureau of Economic Research, Inc.
  11. Belliveau, Stefan, 2013. "Demography of political economy : the baby-boom generation," MPRA Paper 46912, University Library of Munich, Germany.
  12. Barry Bosworth & Gary Burtless, 1997. "Social Security reform in a global context," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 41(Jun), pages 243-274.
  13. Serdar Sayan & Ali Emre Uyar, 2001. "Directions of Trade Flows and Labor Movements between high-and Low-Population Growth Countries: An Overlapping Generations General Equilibrium Analysis," Departmental Working Papers 0108, Bilkent University, Department of Economics.
  14. Turalay Kenc & Serdar Sayan, 1998. "Transmission of Demographic Shock Effects from Large to Small," GE, Growth, Math methods 9804001, EconWPA.
  15. Dekle, Robert, 2002. "Aging and Capital Flows in Japan and Korea," Discussion Paper 78, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  16. Arrau, Patricio, 1989. "Human capital and endogenous growth in a large scale life cycle model," Policy Research Working Paper Series 342, The World Bank.

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