Demographics, Redistribution, and Optimal Inflation
We study the interaction between population demographics, the desire for redistribution in the economy, and the optimal inflation rate in a deterministic economy with capital. The intergenerational redistribution tension is intrinsic in the general equilibrium life-cycle models we use. Young cohorts do not initially have any assets and wages are the main source of income; they prefer relatively low real interest rates, relatively high wages, and relatively high rates of inflation. Older generations work less and prefer higher rates of return from their savings, relatively low wages, and relatively low inflation. In the absence of intergenerational redistribution via lump-sum taxes and transfers, the constrained efficient competitive equilibrium entails optimal distortions on relative prices. We allow the planner to use inflation to try to achieve the optimal distortions. In the economy changes in the population structure are interpreted as the ability of a particular cohort to influence the redistributive policy. When the old have more influence on the redistributive policy, the economy has a relatively low steady state level of capital and a relatively low steady state rate of inflation. The opposite happens as young cohorts have more control of policy. These results suggest that aging population structures like those in Japan may contribute to observed low rates of inflation or even deflation.
|Date of creation:||Sep 2012|
|Contact details of provider:|| Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103|
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carlos Garriga & Fernando Sánchez-Losada, 2009.
"Estate taxation with warm-glow altruism,"
Portuguese Economic Journal,
Springer;Instituto Superior de Economia e Gestao, vol. 8(2), pages 99-118, August.
- Carlos Garriga & Fernando Sánchez-Losada, 2009. "Estate taxation with warm-glow altruism," Working Papers 2009-004, Federal Reserve Bank of St. Louis.
- William G. Gale & John Karl Scholz, 1994. "Intergenerational Transfers and the Accumulation of Wealth," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 145-160, Fall.
- W. G. Gale & J. K. Scholz, "undated". "Intergenerational transfers and the accumulation of wealth," Institute for Research on Poverty Discussion Papers 1019-93, University of Wisconsin Institute for Research on Poverty.
- William G. Gale & John Karl Scholz, 1991. "Intergenerational Transfers and the Accumulation of Wealth," UCLA Economics Working Papers 624, UCLA Department of Economics.
- Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
- Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dávila, Julio, 2012. "The taxation of capital returns in overlapping generations models," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 441-453.
- DAVILA, Julio, "undated". "The taxation of capital returns in overlapping generations models," CORE Discussion Papers RP 2397, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Julio Dávila, 2012. "The taxation of capital returns in overlapping generations models," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00667438, HAL.
- Carlos Garriga-Calvet, 2000. "Optimal Fiscal Policy in Overlapping Generations Models," Econometric Society World Congress 2000 Contributed Papers 1772, Econometric Society.
- Carlos Garriga, 2001. "Optimal Fiscal Policy in Overlapping Generations Models," Working Papers in Economics 66, Universitat de Barcelona. Espai de Recerca en Economia.
- Bullard, James & Waller, Christopher J, 2004. "Central Bank Design in General Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 95-113, February.
- James B. Bullard & Christopher J. Waller, 2002. "Central bank design in general equilibrium," Working Papers 1998-002, Federal Reserve Bank of St. Louis.
- William J. Baumol & Charles A. Wilson (ed.), 2001. "Welfare Economics," Books, Edward Elgar Publishing, volume 0, number 529. Full references (including those not matched with items on IDEAS)