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The Economic Characteristics of an Aging Society: a Dynamic Computable General Equilibrium Analysis

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  • Zuo, Xuejin
  • Peng, Xiujian
  • Yang, Xin
  • Yang, Xiaoping
  • Yue, Han
  • Wang, Meifeng
  • Adams, Philip

Abstract

China is experiencing rapid population ageing. The elderly 65 and older accounted for 13.5 per cent of the total population in 2020. It will continue to increase to 40 per cent in 2100. What’s the economic implication of population aging? Most research has focused on the macroeconomic effects of a declining labour force and increasing elderly. There is insufficient research on the changes in demand for goods and services brought about by population ageing. The research on the impact of such changes on the economy under the computable general equilibrium (CGE) framework is even rare. This paper attempts to fill the research gap in this area. Using a dynamic CGE model of the Chinese economy, in the baseline scenario we projected China’s economic growth path over the period of 2019 to 2100. We assumed that there is no change in the age-specific consumption demand even though there is population ageing which is reflected by the declining working-age population and the increasing elderly population. The simulation results revealed that China has to rely on technology improvement and capital stock increases to support its economic growth. The increasing elderly will put high pressure on China’s general government budget balance. Starting with the baseline described above, we constructed a policy scenario that deviated from the baseline due to ageing-induced changes to household and government consumption preferences for education, health and aged care services. With ageing, demand shifts against education and towards health and aged care services. The simulation results show that the effects on the macroeconomy of age-structure driven changes are negligible, even though the changes will affect the industrial outputs and cause small adjustments to economic structure. The increased demand for medical and aged-care services will exceed the decreased demand for education, thus driving up the general government budget deficit.

Suggested Citation

  • Zuo, Xuejin & Peng, Xiujian & Yang, Xin & Yang, Xiaoping & Yue, Han & Wang, Meifeng & Adams, Philip, 2022. "The Economic Characteristics of an Aging Society: a Dynamic Computable General Equilibrium Analysis," Conference papers 333484, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333484
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    References listed on IDEAS

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    4. Xuejin Zuo & Xiujian Peng & Xin Yang & Philip Adams & Meifeng Wang, 2020. "Population Ageing and the Impact of Later Retirement on the Pension System in China: An Applied Dynamic General Equilibrium Analysis," Centre of Policy Studies/IMPACT Centre Working Papers g-303, Victoria University, Centre of Policy Studies/IMPACT Centre.
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