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Population Aging and the Demand for Goods & Services

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  • Melanie Lührmann

    (Munich Center for the Economics of Aging (MEA))

Abstract

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 – decreasing average household size, but a slow reduction in the number of households – 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.

Suggested Citation

  • Melanie Lührmann, 2005. "Population Aging and the Demand for Goods & Services," MEA discussion paper series 05095, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  • Handle: RePEc:mea:meawpa:05095
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    References listed on IDEAS

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    Cited by:

    1. Attanasio, Orazio & Kitao, Sagiri & Violante, Giovanni L., 2007. "Global demographic trends and social security reform," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 144-198, January.
    2. Max Groneck & Christoph Kaufmann, 2014. "Relative Sectoral Prices and Population Ageing: A Common Trend," Working Paper Series in Economics 69, University of Cologne, Department of Economics.
    3. Ulrich Thießen, 2007. "Aging and Structural Change," Discussion Papers of DIW Berlin 742, DIW Berlin, German Institute for Economic Research.

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    More about this item

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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