Demographic Trends, Fiscal Policy and Trade Deficits
AbstractIn this paper, I argue that demographic factors play a central role in accounting for the trade deficit experienced by the U.S. during the last three decades. The main idea is that cross-country demographic differentials lead to adjustments in savings and investments which are associated with international capital flows towards relatively young and rapidly growing economies. I develop a tractable two-country framework with life-cycle structure that formalizes this intuition. The model permits to illustrate analytically and quantitatively the contribution of demographic variables in determining the equilibrium trade balance. I show that persistent differences in population aging can explain a significant fraction of the negative trend in the U.S. trade balance. Notably, the explicit consideration of the demographic transition also helps to reconcile the dynamics of the trade balance with the evolution of the U.S. fiscal deficits and generates a declining pattern for the real interest rate broadly consistent with the data
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 444.
Date of creation: 03 Dec 2006
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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External Imbalances; Aging; Fiscal Deficits;
Find related papers by JEL classification:
- J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
- NEP-DGE-2007-01-13 (Dynamic General Equilibrium)
- NEP-INT-2007-01-13 (International Trade)
- NEP-PBE-2007-01-13 (Public Economics)
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.:
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