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Living Standards in an Aging Germany: The Benefits of Reforms and the Costs of Resistance

  • Axel Börsch-Supan

    ()

    (University of Mannheim)

  • Alexander Ludwig

    ()

    (University of Mannheim)

The extent of the demographic change in Europe and especially Germany is dramatic and will deeply affect future labor, financial and goods markets. The expected strain on public budgets and especially social security has received prominent attention, but aging poses many other economic challenges that threaten growth and living standards if they remain unaddressed. This paper investigates the potential benefits of pension and labor market reform for growth and living standards, taking into account behavioral reactions to specific reforms. Which behavioral reactions will strengthen, which will weaken reform policies? While Germany has a large unfunded pension system and vulnerable labor markets, Germans show remarkable resistance against pension and labor market reform. Can Germanymaintain its standard of living even if behavioral reactions offset some of the current reform efforts? The paper uses a novel modeling approach to distinguish between exogenous and endogenous components of labor supply in order to shed light on these questions.

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Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 229 (2009)
Issue (Month): 2-3 (June)
Pages: 163-179

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Handle: RePEc:jns:jbstat:v:229:y:2009:i:2-3:p:163-179
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  1. Krueger, Dirk & Ludwig, Alexander, 2006. "On the consequences of demographic change for rates of returns to capital, and the distribution of wealth and welfare," CFS Working Paper Series 2006/18, Center for Financial Studies (CFS).
  2. Attanasio Orazio P. & Kitao Sagiri & Violante Giovanni L., 2006. "Quantifying the Effects of the Demographic Transition in Developing Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-44, April.
  3. Ludwig, Alexander, 2007. "The Gauss-Seidel-quasi-Newton method: A hybrid algorithm for solving dynamic economic models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1610-1632, May.
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  8. Laurence J. Kotlikoff & David A. Wise, 1989. "Employee Retirement and a Firm's Pension Plan," NBER Chapters, in: The Economics of Aging, pages 279-334 National Bureau of Economic Research, Inc.
  9. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation, And Labor Market Flows," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 851-882, 06.
  10. Christian Jaag & Christian Keuschnigg & Mirela Keuschnigg, 2007. "Pension Reform, Retirement and Life-Cycle Unemployment," University of St. Gallen Department of Economics working paper series 2007 2007-43, Department of Economics, University of St. Gallen.
  11. Auerbach, Alan J & Kotlikoff, Laurence J & Skinner, Jonathan, 1983. "The Efficiency Gains from Dynamic Tax Reform," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 81-100, February.
  12. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  13. Alexander Ludwig & Dirk Krüger & Axel Börsch-Supan, 2009. "Demographic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 385-414 National Bureau of Economic Research, Inc.
  14. Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 3.
  15. Jeffrey R. Brown & Jeffrey B. Liebman & David A. Wise, 2009. "Social Security Policy in a Changing Environment," NBER Books, National Bureau of Economic Research, Inc, number brow08-1, June.
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