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Ageing, Government Budgets, Retirement, and Growth

Author

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  • Dirk Niepelt

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

  • Martin Gonzalez-Eiras

    (Universidad de San Andres, Argentina)

Abstract

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.

Suggested Citation

  • Dirk Niepelt & Martin Gonzalez-Eiras, 2010. "Ageing, Government Budgets, Retirement, and Growth," 2010 Meeting Papers 69, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:69
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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