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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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
643.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:643
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Find related papers by JEL classification: E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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