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Macroeconomic and policy implications of population aging in Brazil

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  • Jorgensen, Ole Hagen

Abstract

This paper analyzes the macroeconomic implications of population aging in Brazil. Three alternative yet complementary methodologies are adopted, and depending on policy responses to the fiscal implications of aging, there are two main findings: First, saving rates could increase and not necessarily fall as a consequence of aging in Brazil -- thus contradicting conventional views. Second, lifetime wealth across generations could increase -- as capital deepening generates a second demographic dividend. Two policy responses to aging are emphasized: First, a structural policy response of linking mandatory retirement (or entitlement) ages to increasing life expectancy would boost labor supply and reduce the fiscal costs of aging. Second, in terms of preferable parametric policy responses, the second demographic dividend will be promoted to the highest extent by keeping taxes and debt unchanged while allowing public pensions to adjust downward. Such a policy response would keep pensions from further crowding out private saving -- thus balancing capital accumulation with intergenerational income distribution. In conclusion, Brazil will not necessarily experience a fall in saving and growth, but if government policies are appropriately, adequately, and timely formulated, population aging is likely to lead to substantial capital deepening and increases in lifetime income, wealth, and welfare.

Suggested Citation

  • Jorgensen, Ole Hagen, 2011. "Macroeconomic and policy implications of population aging in Brazil," Policy Research Working Paper Series 5519, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5519
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    References listed on IDEAS

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    1. David De La Croix & Géraldine Mahieu & Alexandra Rillaers, 2004. "How Should the Allocation of Resources Adjust to the Baby Bust?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(4), pages 607-636, October.
    2. David N. Weil, 2006. "Population Aging," NBER Working Papers 12147, National Bureau of Economic Research, Inc.
    3. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, February.
    4. Florian Pelgrin & Alain de Serres, 2003. "The Decline in Private Saving Rates in the 1990s in OECD Countries: How Much Can Be Explained by Non-wealth Determinants?," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 117-153.
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    Cited by:

    1. David Canning & Sangeeta Raja & Abdo S. Yazbeck, 2015. "Africa's Demographic Transition," World Bank Publications, The World Bank, number 22036.

    More about this item

    Keywords

    Emerging Markets; Access to Finance; Population Policies; Economic Theory&Research; Debt Markets;

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