The Impact of Population Aging on Environmental Quality: Does Social Security Matter?

Abstract

In this paper, longevity, social security and the environment are modeled in the context of the prominent two-overlapping-generations general-equilibrium model with rational expectations. The model is developed to examine the impact of population aging, in a pay-as-yougo (PAYG) financed defined contributions pension scheme, on the evolution of capital and environmental quality. Analytical outcomes are derived for the steady state by the method of comparative statics. We have shown, by analysing the effect of aging on environmental quality that the influence of social security appears when the value of longevity exceeds 0,4. A transient regime is obtained by investigating the effect of longevity on capital accumulation at the point where the longevity is equal to 0,24. We have proved that the increase in pensions benefits affect negatively the amplitude of the steady-state capital.