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Welfare Implications of an Aging Population In Korea

Author

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  • Kiseok Hong

    (Ewha Womans University)

Abstract

This paper examines macroeconomic impacts of population aging in Korea using a computable general equilibrium (CGE) model of Auerbach-Kotlikoff (AK) type. The conventional AK model is extended in order to incorporate open economy features and endogenous fertility choices. By applying this model to the current demographic structure of Korea, we obtain the following results. First, welfare implications of population aging are rather complicated, since there are both winners and losers. While current and future young generations will be harmed by population aging, current elderly generations benefit from the trend. Second, policy responses to population aging should be considered with great caution. Fertility promoting policies, for instance, may entail substantial redistribution of resources among individuals from current and future generations. Third, opening up the domestic capital market may be less controversial but a more effective policy response. By reducing fluctuations in the interest and wage rates caused by population aging, capital market integration can moderate welfare variations among different generations.

Suggested Citation

  • Kiseok Hong, 2007. "Welfare Implications of an Aging Population In Korea," Korean Economic Review, Korean Economic Association, vol. 23, pages 379-414.
    • Handle: RePEc:kea:keappr:ker-200712-23-2-07
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    References listed on IDEAS

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    1. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 1999. "Social Security in an Overlapping Generations Economy with Land," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 638-665, July.
    2. Miles, David, 1999. "Modelling the Impact of Demographic Change upon the Economy," Economic Journal, Royal Economic Society, vol. 109(452), pages 1-36, January.
    3. Barro, Robert J & Becker, Gary S, 1989. "Fertility Choice in a Model of Economic Growth," Econometrica, Econometric Society, vol. 57(2), pages 481-501, March.
    4. Alan J. Auerbach & Laurence J. Kotlikoff & Robert P. Hagemann & Giuseppe Nicoletti, 1989. "The Economic Dynamics of an Ageing Population: The Case of Four OECD Countries," OECD Economics Department Working Papers 62, OECD Publishing.
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    Cited by:

    1. Kwon, Kyoo Ho, 2017. "Korea's Demographic Transition and Long-Term Growth Projection Based on an Overlapping Generations Model," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 39(2), pages 25-51.

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    More about this item

    Keywords

    Population-Aging; Auerbach-Kotlikoff; Fertility-Choice; Welfare; Capital- Market-Integration;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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