Macroeconomic effects and policy challenges of population aging, Issues 2006-2095
International Monetary Fund, European Dept., 2006 - Business & Economics - 23 pages
This paper simulates the macroeconomic effects of population aging in a dynamic overlapping generations model of a small open economy. The model is calibrated to data for the Czech Republic, where population aging is proceeding at a pace comparable to that in other advanced countries in Europe. Simulations show that population aging is likely to slow economic growth and improvements in living standards. Although reforms to raise labor force participation and productivity growth can mitigate these adverse effects, they are unlikely to eliminate the need for fiscal reforms. The budget will come under pressure from rising age-related expenditures, and consolidation will be needed to preserve debt sustainability.
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adult population age structure age-earnings profiles aggregate human wealth aging on growth assets birth rates Blanchard 1985 borrowing calibrated capita GDP Czech Republic death rate demographic dynamics demographic projections direct taxes effective labor supply effects of population elderly dependency ratio ensure equation eventually declining exponential Faruqee and Laxton financial wealth financing gap fiscal consolidation fiscal gap force participation rates full-financing GDP growth hump-shaped impact of population increase individual labor supply interest rate International Monetary Fund labor force participation Labor market reforms labor productivity labor-augmenting technological change long-run lower fertility rates macroeconomic effects mitigate MULTIMOD normalized to unity number of hours pension system percent of GDP percent relative population aging shock population growth public debt public finances reflect relative to GDP retirement rising longevity simulation model small open economy stationary population Stock Social Security target level text figure threshold age transfer scheme United Nations working-age World Bank