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From Here to There: Achieving Fiscal Sustainability Under Alternative Demographic Contingencies

Author

Listed:
  • Svend E. Hougaard Jensen

    (Copenhagen Business School Porcelaenshaven 16A)

  • Thorsteinn Sigurdur Sveinsson

    (Central Bank of Iceland)

  • Filipe Bonito Vieira

    (Copenhagen Business School Porcelaenshaven 16A)

Abstract

This paper develops a model with overlapping generations of households, productive public and private capital, and a golden rule of fiscal policy aimed at maximizing economic growth. Studying the transitional dynamics between steady states triggered by different exogenous shocks, we find that a waning fertility rate, coming through a weaker preference for having children, increased longevity, a decrease in subjective discounting or lower financial support for child rearing, will require a policy intervention to ensure convergence to the growth maximizing debt level. A simple calibration exercise shows that when faced with projected demographic aging the adjustments in public debt and public investment required for keeping the economy at its maximum steady state growth rate may be small.

Suggested Citation

  • Svend E. Hougaard Jensen & Thorsteinn Sigurdur Sveinsson & Filipe Bonito Vieira, 2021. "From Here to There: Achieving Fiscal Sustainability Under Alternative Demographic Contingencies," De Economist, Springer, vol. 169(4), pages 427-444, November.
    • Handle: RePEc:kap:decono:v:169:y:2021:i:4:d:10.1007_s10645-021-09392-3
    DOI: 10.1007/s10645-021-09392-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal rules; Public debt; Economic growth; Demographic changes;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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