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Aging and its macroeconomic consequences: An inverted U-shaped endogenous economic growth

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  • Hagiwara, Takefumi

Abstract

This study theoretically analyzes population aging and its impacts on economic growth, wealth inequality, and fiscal sustainability. We introduce lifetime uncertainty to the overlapping generations model with heterogeneous households with varied intertemporal preferences, where unintended bequests caused by death are inherited by offspring. Aging can have both positive and negative impacts on economic growth and fiscal sustainability: saving-enhancing effects based on the life cycle theory and wealth-depletion effects caused by extended longevity. When aging advances, saving-enhancing effects are offset by wealth-depletion effects, which eventually outweigh the former. The results show an “inverted U-shaped” relationship between life expectancy and economic growth rate, or fiscal sustainability. Numerical simulation reveals that aging can produce a trade-off between economic growth and wealth inequality. We also show that a rise in deficit or government expenditure ratios exacerbate fiscal instability, economic growth, and wealth inequality under certain conditions.

Suggested Citation

  • Hagiwara, Takefumi, 2025. "Aging and its macroeconomic consequences: An inverted U-shaped endogenous economic growth," MPRA Paper 124598, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:124598
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    References listed on IDEAS

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    More about this item

    Keywords

    Population Aging; Secular Stagnation; Inequality; Fiscal Sustainability;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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