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Fiscal Demographic Reversal

Author

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  • MIYAMOTO, Hiroaki
  • SHINOHARA, Hiroaki

Abstract

We study how rising longevity affects the long-run real interest rate in an overlapping-generations model with mortality risk and accidental bequests to the young. Longer lives increase retirement saving, which tends to lower the interest rate, but they also reduce such bequests and shift asset payoffs from young savers to surviving retirees, weakening aggregate saving. Public debt amplifies this second force. When debt is sufficiently high, further increases in longevity eventually raise the steady-state interest rate. Thus, longevity need not continue to depress interest rates: with large public debt, the relationship between longevity and the interest rate becomes non-monotonic.

Suggested Citation

  • MIYAMOTO, Hiroaki & SHINOHARA, Hiroaki, 2026. "Fiscal Demographic Reversal," CIS Discussion paper series 711, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:cisdps:711
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    File URL: https://hit-u.repo.nii.ac.jp/record/2062020/files/cis_dp711.pdf
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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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