Population Aging and the Demand for Goods & Services
This paper analyzes the macroeconomic effect of population aging on the aggregate demand for goods and services between 2000 and 2040. As the composition of goods and services consumed varies over the life cycle, the aggregate demand structure is likely to change as well when the population is aging. I estimate these microeconomic age-specific household demands for a set of eight composite goods using a quadratic almost ideal demand system model. The projections are carried out in scenarios in order to distinguish: i) the direct effect of a shift of the age structure, ii) accompanying changes in the level and distribution of spending power and in household composition. The results point to significant increases in the expenditure shares of health and leisure goods and a decline in necessities like food and energy in all scenarios. The direct effect of a shift in the age structure as well as the asymmetric intergenerational distribution of spending power have significant effects on aggregate demand. Changes in household composition â€“ decreasing average household size, but a slow reduction in the number of households â€“ do not affect demand substantially. The future design of the pension system has only a minor impact on the distribution of incomes and total expenditures and thus also a negligible impact on aggregate demand.
|Date of creation:||24 Nov 2005|
|Contact details of provider:|| Postal: Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Amalienstraße 33, 80799 München, Germany|
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