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Population Ageing in a Small Open Economy - Some Policy Experiments With a Tractable General Equilibrium Model

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  • Kilponen, Juha
  • Kinnunen, Helvi
  • Ripatti, Antti

Abstract

This paper extends Gertlerís (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure. The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing. When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, e¢ ciency losses induced by demographic change can be considerable. Stochastic simulations suggest that lengthening of working time has only a modest alleviating e§ect on the Öscal burden of ageing. This is based on the observation that only a small fraction of stochastic variation in an endogenously determined contribution rate is explained by stochastic variation in the length of working time. Variation in life expectancy is clearly much more important.

Suggested Citation

  • Kilponen, Juha & Kinnunen, Helvi & Ripatti, Antti, 2008. "Population Ageing in a Small Open Economy - Some Policy Experiments With a Tractable General Equilibrium Model," Conference papers 331801, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331801
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    Cited by:

    1. Kinnunen, Helvi, 2008. "Government funds and demographic transition: alleviating ageing costs in a small open economy," Bank of Finland Research Discussion Papers 21/2008, Bank of Finland.

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    More about this item

    Keywords

    Labor and Human Capital; Public Economics;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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