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The Macroeconomic Dynamics Of Demographic Shocks

Author

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  • HEIJDRA, BEN J.
  • LIGTHART, JENNY E.
Abstract
The paper employs an extended Yaari-Blanchard model of overlapping generations to study how the macroeconomy is affected over time by various demographic changes. It is shown that a proportional decline in fertility and death rates has qualitatively similar effects to capital income subsidies; both per capita savings and per capita consumption increase in the new steady state. A drop in the birth rate, although keeping the death rate constant, reduces per capita savings, but increases per capita consumption if the generational turnover effect is dominated by the intertemporal labor supply effect. If the generational turnover effect is sufficiently strong, however, a decline in the birth rate may, contrary to standard results, give rise to an increase in per capita savings. Finally, a fertility rate reduction that leaves unaffected the rate of generational turnover is shown to have effects qualitatively similar to those of a fall in public consumption. Both per capita savings and per capita output decline, but per capita private consumption rises.

Suggested Citation

  • Heijdra, Ben J. & Ligthart, Jenny E., 2006. "The Macroeconomic Dynamics Of Demographic Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 10(3), pages 349-370, June.
    • Handle: RePEc:cup:macdyn:v:10:y:2006:i:03:p:349-370_05
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    References listed on IDEAS

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    19. Ben J. Heijdra & Jenny E. Ligthart, 2002. "Tax Policy, the Macroeconomy, and Intergenerational Distribution," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-6.
    20. repec:fth:harver:1490 is not listed on IDEAS
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    3. Fisher, Walter H. & Heijdra, Ben J., 2009. "Keeping up with the ageing Joneses," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 53-64, January.
    4. Klaus Prettner, 2013. "Population aging and endogenous economic growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(2), pages 811-834, April.
    5. Nickel, Christiane & Rother, Philipp & Theophilopoulou, Angeliki, 2008. "Population ageing and public pension reforms in a small open economy," Working Paper Series 863, European Central Bank.
    6. Jochen Mierau & Stephen Turnovsky, 2014. "Capital accumulation and the sources of demographic change," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 857-894, July.
    7. Fehr, Hans & Jokisch, Sabine & Kotlikoff, Laurence J., 2008. "Fertility, mortality and the developed world's demographic transition," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 455-473.
    8. Annarita Baldanzi & Klaus Prettner & Paul Tscheuschner, 2019. "Longevity-induced vertical innovation and the tradeoff between life and growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 32(4), pages 1293-1313, October.
    9. Prettner, Klaus & Strulik, Holger, 2018. "Trade and productivity: The family connection redux," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 276-291.
    10. Klaus Prettner & David Canning, 2014. "Increasing life expectancy and optimal retirement in general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(1), pages 191-217, May.
    11. Davide Bazzana, 2020. "Ageing population and pension system sustainability: reforms and redistributive implications," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 971-992, October.
    12. Emin Gahramanov & Xueli Tang, 2013. "Should We Refinance Unfunded Social Security?," Economica, London School of Economics and Political Science, vol. 80(319), pages 532-565, July.
    13. Heijdra, Ben J. & Ligthart, Jenny E., 2006. "The Macroeconomic Dynamics Of Demographic Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 10(3), pages 349-370, June.
    14. Yingzhu Yang & Rong Zheng & Lexiang Zhao, 2021. "Population Aging, Health Investment and Economic Growth: Based on a Cross-Country Panel Data Analysis," IJERPH, MDPI, vol. 18(4), pages 1-16, February.
    15. Ben J. Heijdra & Laurie S. M. Reijnders, 2016. "Human Capital Accumulation and the Macroeconomy in an Ageing Society," De Economist, Springer, vol. 164(3), pages 297-334, September.
    16. Fisher, Walter H. & Heijdra, Ben J., 2008. "Growth and the Ageing Joneses," Economics Series 230, Institute for Advanced Studies.
    17. repec:wsr:wpaper:y:2015:i:148 is not listed on IDEAS
    18. Khraiche, Maroula, 2015. "A Macroeconomic Analysis Of Guest Worker Permits," Macroeconomic Dynamics, Cambridge University Press, vol. 19(1), pages 189-220, January.
    19. Castro, Gabriela & Maria, José R. & Félix, Ricardo Mourinho & Braz, Cláudia Rodrigues, 2017. "Aging And Fiscal Sustainability In A Small Euro Area Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 21(7), pages 1673-1705, October.
    20. Klaus Prettner & David Canning, 2012. "Increasing life expectancy and optimal retirement:does population aging necessarily undermine economic prosperity?," PGDA Working Papers 9112, Program on the Global Demography of Aging.
    21. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(3), pages 375-401, July.
    22. Fernando Perera-Tallo, 2012. "Optimal Retirement Age and Aging Population," 2012 Meeting Papers 728, Society for Economic Dynamics.
    23. Fedotenkov, I., 2012. "Pensions and ageing in a globalizing world. International spillover effects via trade and factor mobility," Other publications TiSEM 8830bc21-4138-4479-8459-a, Tilburg University, School of Economics and Management.
    24. Attari, Muhammad Qasim & Pervaiz, Dr. Zahid & Razzaq Chaudhary, Dr. Amatul, 2017. "Impact of Agricultural Land Inequality on Human Development in Punjab (Pakistan)," MPRA Paper 89070, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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