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The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population

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  • Finn Kydland
  • Nick Pretnar

Abstract

Throughout the 21st century, population aging in the United States will lead to increases in the number of elderly people requiring some form of living assistance which, as some argue, is to be seen as a burden on society, straining old-age insurance systems and requiring younger agents to devote an increasing fraction of their time toward caring for infirm elders. Given this concern, it is natural to ask how aggregate GDP growth is affected by such a phenomenon. We develop an overlapping generations model where young agents face idiosyncratic risk of contracting an old-age disease, like for example Alzheimer's or dementia, which adversely affects their ability to fully enjoy consumption. Young agents care about their infirm elders and can choose to supplement elder welfare by spending time taking care of them. Through this channel, aggregate GDP growth endogenously depends on young agents' degree of altruism. We calibrate the model and show that projected population aging will lead to future reductions in output of 17% by 2056 and 39% by 2096 relative to an economy with a constant population distribution. Curing diseases like Alzheimer's and dementia can lead to a compounded output increase of 5.4% while improving welfare for all agents.

Suggested Citation

  • Finn Kydland & Nick Pretnar, 2019. "The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population," NBER Working Papers 25498, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25498
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    References listed on IDEAS

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    1. The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population
      by Christian Zimmermann in NEP-DGE blog on 2018-09-28 09:11:07

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    Cited by:

    1. Aurelien Eyquem & Masahige Hamano, 2022. "Aging, Fertility and Macroeconomic Dynamics," Working Papers 2121, Waseda University, Faculty of Political Science and Economics.
    2. David E. Bloom & Alex Khoury & Eda Algur & J. P. Sevilla, 2020. "Valuing Productive Non-market Activities of Older Adults in Europe and the US," De Economist, Springer, vol. 168(2), pages 153-181, June.
    3. David E. Bloom & Alex Khoury & Eda Algur & J. P. Sevilla, 0. "Valuing Productive Non-market Activities of Older Adults in Europe and the US," De Economist, Springer, vol. 0, pages 1-29.
    4. Miyake, Atsushi & Shintani, Masaya & Yasuoka, Masaya, 2021. "Elderly Care and Informal Family Care," MPRA Paper 110126, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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