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Demographic change and the German current account surplus

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  • Schön, Matthias

Abstract

This paper analyses whether the severe demographic change in Germany causes its high current account surpluses. An ageing population both increases the supply and lowers demand of capital in an economy. Due to a longer life span individuals save more. Fewer workers reduce the optimal capital stock. In addition, there are positive or negative effects on (net) foreign assets depending on how existing public pay as you go pension systems adjust in an ageing society. According to a two region model with endogenous savings, labour supply and a bequest motive that is augmented with actual demographic data projections for OECD countries, the demographic change is a key determinant of the current account. However, it cannot fully account for the magnitude of the recent German surplus. The simulation results further indicate that both a higher retirement age and a fixed pension level with a rising contribution rate reduce foreign assets. If the contribution rate is fixed and the pension level lowered to accommodate this, foreign assets increase.

Suggested Citation

  • Schön, Matthias, 2019. "Demographic change and the German current account surplus," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203527, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc19:203527
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    References listed on IDEAS

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    More about this item

    Keywords

    demographic change; current account; capital markets; pension system; OLG models;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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