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Effectiveness of Fiscal Policy in Aging Economies

Author

Listed:
  • MIyamoto Hiroaki

    (Professor, Faculty of Economics and Business Administration, Tokyo Metropolitan University/ Visiting Professor, Kochi University of Technology)

  • Yoshino Naoyuki

    (Professor Emeritus, Keio University/ Adjunct Professor, National Graduate Institute for Policy Studies)

Abstract

This paper examines how population aging affects the effectiveness of fiscal policy. We estimate the fiscal multipliers for both aging and non-aging economies by using the panel data of OECD countries. We find that population aging weakens the output-boosting effects of fiscal policy. That is because in aging economies, the responses of private consumption and employment to fiscal stimulus become weak, resulting in a decline in the fiscal multiplier. Our analysis suggests that in aging economies, to sustain domestic demand, other economic policies and structural reforms need to play a more important role.

Suggested Citation

  • MIyamoto Hiroaki & Yoshino Naoyuki, 2021. "Effectiveness of Fiscal Policy in Aging Economies," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 17(3), pages 1-18, November.
    • Handle: RePEc:mof:journl:ppr17_03_03
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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