From Here to There: Achieving Fiscal Sustainability Under Alternative Demographic Contingencies

Abstract

This paper develops a model with overlapping generations of households, productive public and private capital, and a golden rule of fiscal policy aimed at maximizing economic growth. Studying the transitional dynamics between steady states triggered by different exogenous shocks, we find that a waning fertility rate, coming through a weaker preference for having children, increased longevity, a decrease in subjective discounting or lower financial support for child rearing, will require a policy intervention to ensure convergence to the growth maximizing debt level. A simple calibration exercise shows that when faced with projected demographic aging the adjustments in public debt and public investment required for keeping the economy at its maximum steady state growth rate may be small.

Assessing Fiscal Sustainability in the Landscape of Economics Research

“…In this way, incorporating the keywords population, generational, and intergenerational. Here, we can find the studies of Alho and Lassila (2023), Dolls et al (2017), Gruen and Spender (2012), Hansen and ˙Imrohoro glu (2023), Jensen et al (2021), andPinheiro (2021). The common thread across these studies is their exploration of how demographic changes, such as aging populations, fertility rates, labor force shifts, and other demographic factors, significantly impact fiscal policies and sustainability, thereby underlining the need for informed decision making and policy interventions.…”