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Ageing, Government Budgets, Retirement, and Growth

  • Dirk Niepelt

    (Study Center Gerzensee, U of Bern, IIES Stockholm)

  • Martin Gonzalez-Eiras

    (Universidad de San Andres, Argentina)

We analyze the short and long run effects of demographic ageing---increased longevity and reduced fertility---on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict per-capita growth in OECD economies to accelerate in response to demographic ageing even though taxation and the retirement age increase. If only fiscal policy were endogenous but the retirement age were held constant, the growth rate would increase less strongly, due to a surge of social security transfers and crowding out of public investment.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 69.

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Date of creation: 2010
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Handle: RePEc:red:sed010:69
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