Demographic Change, Human Capital and Welfare

Ludwig, Alexander; Schelkle, Thomas; Vögel, Edgar

doi:10.2139/ssrn.1538748

Cited by 43 publications

(75 citation statements)

References 39 publications

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“…The population projection in 2200 is constructed to be stationary. 17 3. This paper then solves the model for an equilibrium transition path between 1975 and 2200 using one of population projections as well as historical population.…”

Section: Calibration Strategymentioning

confidence: 99%

Fiscal policy effects in a heterogeneous-agent OLG economy with an aging population

Nishiyama

2015

Journal of Economic Dynamics and Control

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This paper incorporates the aging population projected by the U.S. Social Security Administration to a heterogeneous-agent OLG model with idiosyncratic wage shocks and analyzes its effects on individual households, the government budget, and the overall economy. The fiscal gap caused by the demographic change is 2.94% of GDP under the intermediate projection. The effect of the aging population is large by itself and depends significantly on how the government finances the cost of the demographic change.There is a strong trade-off between efficiency and equity, and this paper quantitatively assesses the pros and cons of stylized fiscal reform plans.JEL Classification Numbers: D91, E62, H31.without the aging population, if the government increases marginal income tax rates proportionally; but GDP per capita will increase modestly by 1.7% in 2039 and 3.1% in the long run if the government instead decreases Social Security benefits proportionally. Cutting Social Security benefits looks better than raising marginal income tax rates in terms of its effects on output. However, the welfare results indicate that households in the current generation-those aged 21 and older at the time of the policy change-strongly prefer increasing marginal income tax rates to cutting Social Security benefits, at the expense of households in the future. If the government cares about the level of future output and the inter-generational equity at the same time, it is probably safe to consider one of the following options: (1) raising the flat consumption tax to balance the budget each year, and (2) cutting Social Security benefits and raising payroll tax rates proportionally roughly on 50-50 basis instead. As the fiscal gap generated by the demographic changes increases over time, delaying the policy reform (by increasing the government debt) is not desirable in terms of both the economic output and the intergenerational equity.Needless to say, this is not the first paper that incorporates the U.S. aging population into a generalequilibrium OLG model and analyzes its macroeconomic and welfare effects. Relative to the previous literature, however, the present paper has a variety of strengths in the model economy and calibration procedure.To the best of my knowlege, Auerbach and Kotlikoff (1987) are the first to incorporate the historical and predicted changes in the fertility rate to a large-scale deterministic general-equilibrium OLG model. Kotlikoff, Smetters, and Walliser (2007) incorporate the U.S. demographic changes to their 12-incomelevel deterministic general-equilibrium OLG model. Ludwig, Schelkle, and Vogel (2012) also incorporate the U.S. demographic changes to their deterministic general-equilibrium OLG model with human capital accumulation. The present paper conducts the similar exercises in a heterogeneous-agent OLG economy with idiosyncratic wage shocks and mortality shocks, so that the model can capture not only the intergenerational redistribution effect of the government fiscal policy but also its intra-generational redistr...

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Section: Calibration Strategymentioning

confidence: 99%

Fiscal policy effects in a heterogeneous-agent OLG economy with an aging population

Nishiyama

2015

Journal of Economic Dynamics and Control

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“…This may also result in an upward pressure on wages with corresponding effects on the relative price, given the non‐tradable sector is relatively labour‐intensive. According to Krueger and Ludwig (), Ludwig, Schelkle and Vogel () and Heijdra and Reijnders () the impact of demographic change on factor prices is expected to be limited . Nevertheless, our empirical analysis considers these channels as well.…”

Section: Introductionmentioning

confidence: 99%

Determinants of Relative Sectoral Prices: The Role of Demographic Change

Groneck

Kaufmann

2016

Oxf Bull Econ Stat

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Demographic change raises demand for non‐tradable old‐age related services relative to tradable commodities. This demand shift increases the relative price of non‐tradables and thereby causes real exchange rates to appreciate. We claim that the change in demand affects prices via imperfect intersectoral factor mobility. Using a sample of 15 OECD countries, we estimate a robust increase of relative prices. According to our main estimate, up to one fifth of the average increase in relative prices between 1970 and 2009 can be attributed to population ageing. Further findings confirm the relevance of imperfect factor mobility: Countries with more rigid labour markets experience stronger price effects.

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“…An aging population decreases the share of the working-age population, which in turn increases the capital-labor ratio, lowers the rates of return on capital, and thus creates a disincentive to save. Endogenous human capital adjustment (Ludwig, Schelkle, and Vogel, 2012) or …rms'incentive to invest in innovation that a¤ect total factor productivity (Heer and Irmen, 2014) could mitigate this negative impact .…”

Section: Literature Reviewmentioning

confidence: 99%

Pensions, education, and growth: A positive analysis

Ono

Uchida

2016

Journal of Macroeconomics

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This study presents an overlapping generations model to capture the nature of the competition between generations regarding two redistribution policies, public education and public pensions. From a political economy viewpoint, we investigate the e¤ects of population aging on these policies and economic growth. We show that greater longevity results in a higher pension-to-GDP ratio. However, an increase in longevity produces an initial increase followed by a decrease in the public educationto-GDP ratio. This, in turn, results in a hump-shaped pattern of the growth rate.

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Demographic Change, Human Capital and Welfare

Cited by 43 publications

References 39 publications

Fiscal policy effects in a heterogeneous-agent OLG economy with an aging population

Fiscal policy effects in a heterogeneous-agent OLG economy with an aging population

Determinants of Relative Sectoral Prices: The Role of Demographic Change

Pensions, education, and growth: A positive analysis

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