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Much Ado About Nothing? Demographic Bulges, The Productivity Puzzle, And Cpp Reform

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  • J. C. HERBERT EMERY
  • IAN RONGVE

Abstract

Analysts predict that future demographically driven financial imbalances will undermine the sustainability of pay‐as‐you‐go social insurance arrangements like the Canada Pension Plan (CPP). Proposed reforms for the CPP focus on raising the contribution rate to pre fund future benefits. In an overlapping generations model, the authors examine how demographic factors alone could explain the observed changes in productivity/wage growth over the last 30 years. The authors also examine how these factors impact on a pay‐as‐you‐go financed CPP. If Canada is a small open economy, then real wages and real interest rates are not affected by domestic demographic conditions. In this setting, increasing payroll taxes transfers the burden of finance away from the lower income baby bust generation to the higher income baby boom generation. In contrast, if Canada can be characterized as a closed economy, then real wages and real interest rates are sensitive to domestic demographic conditions. In this setting, increasing payroll taxes now to keep taxes lower in future is intergenerationally regressive because the CPP burden is reduced for the well off baby bust generation and passed onto the lower income baby boomers. (JEL H55, J18, J10)

Suggested Citation

  • J. C. Herbert Emery & Ian Rongve, 1999. "Much Ado About Nothing? Demographic Bulges, The Productivity Puzzle, And Cpp Reform," Contemporary Economic Policy, Western Economic Association International, vol. 17(1), pages 68-78, January.
  • Handle: RePEc:bla:coecpo:v:17:y:1999:i:1:p:68-78
    DOI: 10.1111/j.1465-7287.1999.tb00664.x
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    File URL: https://doi.org/10.1111/j.1465-7287.1999.tb00664.x
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    References listed on IDEAS

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    1. Welch, Finis, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 65-97, October.
    2. Summers, Lawrence H, 1993. "Keynote Speech: Population Problem Confronted by the World Economy: A Summary," Public Finance = Finances publiques, , vol. 48(Supplemen), pages 1-3.
    3. Laurence J. Kotlikoff, 1979. "Social Security and Equilibrium Capital Intensity," The Quarterly Journal of Economics, Oxford University Press, vol. 93(2), pages 233-253.
    4. David C. Stapleton & Douglas J. Young, 1984. "The Effects of Demographic Change on the Distribution of Wages, 1967-1990," Journal of Human Resources, University of Wisconsin Press, vol. 19(2), pages 175-201.
    5. Berger, Mark C, 1985. "The Effect of Cohort Size on Earnings Growth: A Reexamination of the Evidence," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 561-573, June.
    6. Burbidge, John B., 1983. "Social security and savings plans in overlapping-generations models," Journal of Public Economics, Elsevier, vol. 21(1), pages 79-92, June.
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    Cited by:

    1. J.C. Herbert Emery, 2010. "Understanding the Political Economy of the Evolution and Future of Single-Payer Public Health Insurance in Canada," SPP Briefing Papers, The School of Public Policy, University of Calgary, vol. 3(2), February.
    2. William Scarth, 2003. "Population Aging, Productivity, and Growth in Living Standards," Social and Economic Dimensions of an Aging Population Research Papers 90, McMaster University.
    3. Daniel Beland & John Myles, 2003. "Stasis Amidst Change: Canadian Pension Reform in an Age of Retrenchment," Social and Economic Dimensions of an Aging Population Research Papers 111, McMaster University.
    4. William Scarth, 2003. "Population Aging, Productivity, and Growth in Living Standards," Quantitative Studies in Economics and Population Research Reports 380, McMaster University.
    5. Susan A. McDaniel, 2003. "Toward Disentangling Policy Implications of Economic and Demographic Changes in Canada's Aging Population," Canadian Public Policy, University of Toronto Press, vol. 29(4), pages 491-509, December.

    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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