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On the Consequences of Demographic Change for International Capital Flows, Rates of Returns to Capital, and the Distribution of Wealth and Welfare

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Author Info

  • Dirk Krueger
  • Alexander Ludwig

    ()
    (Department of Economics Mannheim Research Institute for the Econ)

Abstract

In all major industrialized countries the population is aging over time, reducing the fraction of the population in working age. Consequently labor is expected to be scarce, relative to capital, with an ensuing decline in real returns on capital and increases in real wages. This paper employs a large scale OLG model with intra-cohort heterogeneity to ask what are the distributional consequences of these changes in factor prices induced by changes in the demographic structure. Since these demographic changes occur at different speed in industrialized economies we develop a multi-region (the US, the European Union, the rest of the OECD and the rest of the world) openeconomy model that allows for international capital flows. This allows us to evaluate to what extent the distributional consequences of changing factor prices for the US and Europe are mitigated or accentuated by the fact that the population is aging at different rates elsewhere in the world

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File URL: http://repec.org/sed2006/up.25665.1140026022.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 643.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:643

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Keywords: aging; capital flows; pension reform; welfare; distribution;

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References

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  1. Axel Boersch-Supan & Alexander Ludwig & Joachim Winter, 2005. "Aging, Pension Reform, and Capital Flows: A Multi-Country Simulation Model," NBER Working Papers 11850, National Bureau of Economic Research, Inc.
  2. Christopher Carroll, 2005. "The Method of Endogenous Gridpoints for Solving Dynamic Stochastic Optimization Problems," Economics Working Paper Archive 520, The Johns Hopkins University,Department of Economics.
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Cited by:
  1. Miguel Sánchez Romero, 2011. "The role of demography on per capita output growth and saving rates," MPIDR Working Papers WP-2011-015, Max Planck Institute for Demographic Research, Rostock, Germany.

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